Rights of light decisions are a bit like the proverbial buses – you wait for quite a while and then three come along in quick succession. The most recent of these were Midtown Ltd v City of London Real Property Company Ltd [2005], Regan v Paul Properties Ltd [2006] and Tamares (Vincent Square) Ltd v Fairpoint Properties (Vincent Square) Ltd [2007].

Although this area of law has benefited from recent judicial determination, in view of the factual context of each case and the high degree of judicial discretion that is vital to determining their outcome, it is not always straightforward anticipating how a court might interpret a given situation presented by a developer client.

Regan: the right to an injunction This Court of Appeal case made it clear that a claimant who has a right of light that can be protected by means of an injunction will prima facie be entitled to an injunction should the right be infringed by a developer. Instead of a claimant having to prove why it should be entitled to an injunction instead of damages, the Court restored the default position of the claimant being entitled to an injunction and the burden being on the developer to prove ‘exceptional circumstances’ so that damages would be awarded instead.

The ‘exceptional circumstances’ are well established and derive from Shelfer v City of London Electric Lighting Co Ltd [1895]. To be awarded damages in lieu, a defendant must show that:

(1) the injury to the claimant is small;

(2) the injury to the claimant is capable of being estimated in money;

(3) the injury can be adequately compensated by a small payment; and

(4) it would be oppressive to the defendant to grant an injunction.

The recent case of Jacklin v Chief Constable of West Yorkshire [2007] confirms that all four elements must be satisfied in order for damages to be awarded in lieu of injunction.

In Regan an assessment of the residential claimant’s loss was £5,000. On the facts, the Court of Appeal determined that there was a significant infringement that needed to be protected by an injunction. The Court also took into account the conduct of the developer in continuing the development despite being aware of Regan’s objection, as well as considering the actual loss of light enjoyed by Regan’s living room.

This case is a cause of concern for developers, especially in view of the Court’s decision that Regan’s loss of light should be protected by way of injunction despite the relatively small value attached to it.

Tamares – a ray of light?

Gabriel Moss QC in the High Court heard Tamares at the same time as Regan was heard in the Court of Appeal. In Tamares the light enjoyed by a stairwell was affected to an actionable degree. However, the Court decided that an injunction would be oppressive to the developer in the circumstances. The fact that the stairwell was non-habitable space and generally was artificially lit influenced the Court’s decision. The judge awarded damages in lieu of injunction (the decision being broadly similar to that in Midtown).

This case sits well with the Regan decision, despite the different conclusion reached. The developer was able to demonstrate exceptional circumstances as to why an injunction was inappropriate and why damages in lieu more equitably did justice between the parties.

An unwanted profit-share for developers

The collective sigh of relief from developers following this decision was replaced by a sharp intake of breath after the subsequent quantum judgment in the case.

Gabriel Moss QC’s damages decision in Tamares confirms that the restitutionary damages principles established in Wrotham Park Estate Company v Parkside Homes Ltd [1974] and developed in cases such as Amec Developments Ltd v Jury’s Hotel Management (UK) Ltd [2000] apply to the rights of light arena.

He held that damages will be based on the higher of the value attributed to:

(1) the loss of amenity suffered by the claimant; and

(2) the loss of the ability for the claimant to obtain an injunction.

Where the loss of light suffered by the claimant has a relatively minor impact on the value of the property, the basis of calculation is likely to be on the loss of the right to obtain an injunction (as was the case in Tamares). In the only reported High Court decision concerning the assessment of damages in a right of light claim, Carr-Saunders v Dick McNeil Associates Ltd [1986], Millett J held that a claimant would not be satisfied with a modest sum for loss of amenity, but ‘would have a bargaining position’. This bargaining position is the prima facie right to an injunction preventing development, which in many cases is worth more than the actual loss of amenity to the claimant. Where evidence from the respective parties exists as to the anticipated development profit to be derived from building the proposed scheme (or part of the scheme) which will infringe the property right of the claimant (based on likely building costs, the selling prices and the amount of profit that could be made), the court will use the result of a hypothetical negotiation between the parties to arrive at a figure for development profit (in Tamares, the median between the claimant’s figure of £163,000 and the defendant’s figure of £186,000).

The development profit is based on the expected profit that would be made on the part of the scheme which infringes the claimant’s right of light and not the profit that would be made on the whole scheme. For example, where five storeys of a 30-storey tower cause an actionable infringement to a claimant’s land, the development profit is calculated as the amount of profit the developer would make as a result of the five storeys being built as opposed to them not being built. Similarly, where an actionable infringement occurs to a claimant’s land as a result of a development scheme being built too close to the dominant land, the profit figure will be the profit made as a result of building too close to the claimantt’s building, as opposed to the profit that would have been obtained had the building been appropriately set back so as not to infringe the claimant’s rights.

The court then needs to determine what percentage of this development profit represents a fair percentage to be awarded to the claimant. This should be determined in accordance with the factual context and what figure the defendant would be realistically expected to pay in order to carry out the development. In Tamares the developer’s previous expert surveyor had in correspondence suggested that the ‘buy-out’ cost of the right for the claimant to obtain an injunction was one-third of the development profit.

Gabriel Moss QC stated that such a percentage ‘illustrates expectations in a negotiation of this kind and seems to accord with common sense’. This is because the proposed share of profit should not be so high as to put the developer off carrying out that particular part of the work. Further, it takes into account that the developer, by agreeing to pay one-third of expected development profit to the claimant, is taking the risk that a profit will actually be realised, whereas the other party is not. Moss contended that this explains the reasonableness of the one-third/two-thirds split rather than a 50/50 or a 40/60 split.

Having calculated the percentage of the loss, the factual context should be considered. Where the infringement is a modest one, the one-third figure should be reduced (in Tamares, it was reduced from £58,166 to £50,000). Conversely, where the infringement is sufficiently significant, it would be expected that an uplift could be applied to the original percentage calculation.

As a final check that the valuation of the award is appropriate, the court should ask the question (applying Anthony Mann QC’s judgment in Amec), ‘Does the deal feel right?’ In Tamares £50,000 for loss of injunction was significantly higher than the calculation that was made for the loss of amenity (between £608 and £3,030). However, in terms of avoiding an injunction, the deal felt right. Anything higher than £50,000 would not have felt right to Moss, even if a higher sum could have been justifiable based on the criteria that have been set out above.

By way of aside, where there is no evidence as to the valuation of development profit, Moss stated that the court should use the loss of amenity value as the starting point and apply a multiple to it to determine the amount of damages payable. He did not consider this in any further detail, though again, any award would have to ‘feel right’.

Conclusions

The courts are not afraid to grant injunctions to protect property rights, so developers should be advised to assess the rights of light situation concerning their development at an early stage, and should appoint specialist solicitors and rights of light surveyors to assess the impact of the development upon rights enjoyed by neighbouring owners.

Advising developers

Where possible when acting for a developer, light obstruction notices under the Rights of Light Act 1959 should be served to prevent acquisition of prescriptive rights and avoid the risk of a neighbouring property claiming an injunction. This is especially important where development cannot commence for some time (eg, as a result of awaiting tenancies on the development site to expire). The notice, if served and registered at the local Land Charges Registry within 19 years from the date that the neighbouring building commenced enjoying light over the development, will prevent the neighbouring owner claiming a prescriptive right over the development land. Registration of a Notice for one year will defeat a prescriptive right. If Notice is served after 19 years from the date the neighbouring building commenced enjoying light, the neighbouring owner will acquire 20 years’ enjoyment of light (and hence a prescriptive right).

Even if a neighbouring property has acquired a prescriptive right by enjoying light over the development land for more than 20 years, the registration of the notice for a period of one year will defeat the acquired right, as the neighbouring owner will be deemed to have acquiesced in the infringement of its right of light.

Prior to negotiations with any neighbouring owner who may have a claim, the developer’s advisers should already have assessed whether the claimant has a right that can be protected by an injunction. If not, a small amount of compensation can be paid to the claimant to reflect the loss suffered as a result of the infringement to its right.

If the claimant would be entitled to an injunction, and no agreement between the parties is reached on settlement, the developer will need to demonstrate ‘exceptional circumstances’ as to why the claimant should not be awarded an injunction.

If the court does not award an injunction, developers should be conscious of the quantum decision in Tamares and should be prepared for a ‘fair proportion’ of relevant profit to be awarded to the claimant. The developer’s advisers should determine at an early stage what parts of the development infringe rights of light in order to calculate what proportion of development profit should be budgeted for potentially injunctable rights of light claims. This will assist rights of light planning within the context of the overall development.

If the development will in any event infringe an adjoining owners right, the developer should be advised, where practical, to consider structuring the development so that the infringing parts generate a lower profit than the noninfringing parts of the development.

Advising claimants

When acting for a claimant or potential claimant whose light is substantially infringed, lawyers should rely on the Tamares decision to obtain greater financial leverage if the client is happy to accept compensation instead of an injunction. Developers in this situation should assess the sum they would be prepared to pay to a potential claimant; this sum will need to reasonably represent the cost of buying their right to prevent development by obtaining an injunction.

This may not be a straightforward task, but in light of the recent decisions, developers will need to be tuned into the enhanced bargaining power of those claiming rights of light.

Finally, developers should not be complacent about infringing the rights of a party (especially a residential one) that has an actionable right. Regan demonstrates that the courts are not toothless when it comes to protecting rights of light and the developer will have to be prepared to demonstrate why an injunction is not appropriate.

The recent cases, whilst not strictly changing the law, have stressed the importance of property rights and have re-emphasised that infringement of such rights will be at a significant cost.  © Property Law Journal