Key points
• If a rights-of-light surveyor concludes actionable interference, the developer’s solicitors must advise on potential claims
• Most leases seek to exclude any right of light in favour of the tenant
• Any compensation package is assessed on a building-by-building basis
The case of HKRUK II (CHC) Ltd v Heaney [2010] EWHC 2245 (Ch) has considerably raised the profile of potential rights of light claims in the context of assessing development risk.
One area that can cause a significant headache for developers is the rights of tenants to claim compensation. This article sets out the risk analysis that developers should undertake and what traps they should be aware of.
Actionable interference
If an appointed rights-of-light surveyor concludes there is actionable interference, the developer’s solicitors must advise in respect of each identified building whether there are any potential claims.
In analysing the title documents for the development site and the buildings with potential actionable interference, it is vital to distinguish between agreements where parties have covenanted not to take action should a right of light be infringed, and those where parties are granted an easement allowing development to go ahead, notwithstanding the impact this has on the amount of light that will subsequently go into a building. The distinction is significant because the burden of the covenant not to take action will not automatically bind successors in title, but the easement will.
Solicitors also need to check the land charges register for any light obstruction notices served on the owners of adjoining buildings. When served properly and in time, these stop a prescriptive right of light from accruing. However, light obstruction notices cannot prevent claims under the doctrine of lost modern grant.
In the absence of documents that protect the developer’s position, the next step is to analyse who it needs to do deals with. The “compensation package”, where an actionable interference will occur as a consequence of development, is assessed on a building-by-building basis. So, if a rights-of-light surveyor assesses that £100,000 would be an appropriate level of compensation, this is the aggregate that should be paid to all potential claimants with an interest in the building.
After Heaney, development funders, not to mention developers, are reluctant to rely on the combination of indemnities in respect of potential claims by tenants given to them by building owners and insurance. They are only really confident that the threat of claims has been dealt with when deals have been struck with all identified potential claimants. This can lead to the actual sum of compensation being more than the estimated package.
Assessing possible claims
Most leases seek to exclude any right of light in favour of the tenant. That way, the landlord can claim all compensation attributable to its building and carry out development in the vicinity. Leases often deal with this by excluding section 62 of the Law of Property Act 1925 so no accrued prescribed rights are enjoyed by the tenant. Or they may reserve for the landlord (and others) the right to develop elsewhere, notwithstanding the impact on the amount of light and air that gets to the demised premises. But even if a lease has these provisions, the developer can’t be certain a tenant will not have a claim.
There is a school of thought that, unless a lease states differently, prescriptive rights accrue only for the benefit of freeholders. On this basis, a tenant would be able to make a claim only where a landlord passes on the benefit of the right of light to a tenant. If this is “good law”, the result is that long leaseholders would have a claim only if their lease transferred the right from landlord to tenant.
A developer would be taking a risk if it decided it did not need to enter into a settlement with a tenant who had otherwise established a prescriptive right of light simply because that entity was a tenant rather than a freeholder. Chadwick LJ in Williams v Sandy Lane (Chester) Ltd [2006] EWCA 1738 (Civ) went as far as to describe the rule that easements can only be acquired on behalf of the freeholder as “trite law”. So, even where a lease expressly excludes a tenant’s right of light against development, arguably a landlord is not, as a matter of law, in a position to prevent a prescriptive right accruing in favour of the tenant against third parties, even including group companies of the landlord/developer.
Lost modern grant
If a building was built less than 20 years ago, a prescriptive right under the Prescription Act 1832 cannot have accrued. However, it is possible that rights of light have been transferred from a previous building to the current building under the doctrine of lost modern grant. Simmonds v Dobson [1991] 4 All ER 25 established that a tenant cannot acquire an easement against its own landlord under this rule of law. Many commentators believe tenants cannot acquire an easement under the doctrine against third parties either, although this was not expressly dealt with in Simmonds so would be a dangerous assumption for a developer to make.
The recent cases of China Field Ltd v Appeal Tribunal (Buildings) and Sun Honest Development Ltd v Appeal Tribunal (Buildings) provided that Simmonds was not good law in Hong Kong. Lord Millett NPJ said: “I doubt whether either of the two rules [fee simple rule and common landlord rule] under discussion would be upheld in England were they to be examined by the House of Lords.” It is unlikely many tenants would be confident enough to go the Supreme Court to establish a right of light under the doctrine of lost modern grant, but this case does indicate that if they did, they may well be successful.
So, when assessing tenants’ rights of light, it is important to look beyond the wording of the lease. Where lost modern grant is concerned, the onus would be on the tenant to challenge the established law, but it would be a brave developer, in light of Heaney, who would take the risk of court action rather than agree sensible compensation with tenants at the outset.
It could even be worth a developer arguing the tenant’s case as a way of watering down the compensation payable to a freeholder of any building, given that compensation is supposed to be on a building-by-building basis.
Mark Mallon is a real estate partner at Lawrence Graham LLP
