Rights of light: some welcome clarity

The ‘right of light’ is an easement granted to property owners providing them with the right to adequate natural light. The easement protects a property's access to daylight from compromise by nearby developments or renovations.

Developments that increase the height or mass of a property, or the construction of new property, can infringe the right of light enjoyed by surrounding properties. Such infringement can give neighbouring property owners a right of action against the developer which, in certain circumstances, include the granting of an injunction preventing the development from going ahead (or, potentially, require the demolition or ‘cutting back’ of a building).

Developers will often secure right of light indemnity insurance, which, subject to the application of (generally substantial) deductibles, will respond to claims brought by neighbouring property owners.

Cooper & Another v Ludgate House Limited is a decision which addresses the key issues and uncertainties facing the developers (and their insurers) and claimants (and their backers). It is a decision in which those who underwrite right of light indemnity insurance policies will have taken a keen interest.

Background

The decision concerns the award-winning Arbor Tower on London's South Bank, a 19-storey office tower completed in 2022 as part of a larger £1 billion scheme (comprising eight towers, with seven still to be built) to regenerate Bankside Yards.

Seven of the eight towers had been afforded ‘Section 203’ protection. Section 203 of the Housing and Planning Act 2016 enables local authorities to override easements and other third-party rights (including rights of light) when land is either acquired or appropriated for planning purposes. This allows development to proceed even where neighbouring property rights could otherwise prevent it (with those neighbours being entitled to statutory compensation).

The developer here had, subsequent to the commencement of construction of the Arbor Tower, secured Section 203 protection from the local authority in respect of the wider development. However, the Section 203 protection did not extend to the Arbor Tower, due to it having been substantially constructed when the application was made.

The claimants own flats on the 6^th and 7^th floors of Bankside Lofts, a complex of loft-style apartments, situated adjacent to the Arbor Tower. They claimed that Arbor Tower blocked their natural light and sought an injunction to force the developer to demolish the building (either completely or partially – by means of a ‘cut back’) to restore their light. Although the main cause of light loss would, in time, be two of the unbuilt towers within the wider development, the claimants focussed on the Arbor Tower because, unlike the rest of the wider development, it did not have Section 203 protection.

Injunction? Not this time

The court found that the Arbor Tower did cause substantial to moderate interference with the claimants’ rights of light (affirming the use of the 100+ year old ‘Waldram method’ of assessment). However, after setting out the relevant principles with great clarity, the judge declined to grant the claimants an injunction.

Importantly:

The timing of the claims was not a significant factor for refusing an injunction. The claimants were found not to have unreasonably delayed in bringing their claims, despite one of them having been aware of the development for many years.
Commercial tenants of the Arbor Tower had not been made parties to the proceedings and this weighed against the granting of an injunction.
So, too, did the benefits of retaining the Arbor Tower (which is a cutting edge and carbon neutral building), the environmental impact and the huge waste of resources if it was demolished or cut back.
As did the potential futility of an injunction - if demolition was ordered, the developer could, subject to planning permission, rebuild the Arbor Tower with the benefit of the Section 203 protection.
The developer had engaged with neighbouring property owners over several years and when it started to build the Arbor Tower believed that, on its own, it did not interfere with the claimants’ light. It was only when Section 203 protection was engaged over the remainder of the wider development site, at which point the claimants could no longer protect against the loss of their light .

Even in circumstances where the claimants were found genuinely to want to protect their light and to have suffered "substantial" and "moderate" interference, they did not secure an injunction. In a decision which will be welcomed by developers (and those who insure their developments), proportionality was held to lean strongly in favour of the rejection of an injunction.

What about the money?

The developer was successful in defeating the claim for an injunction. However, it unsuccessfully persuaded the court to award damages based on diminution in value to the claimants’ flats caused by the interference; notwithstanding this is the approach generally taken in negotiations between developers and the owners of neighbouring properties when the former first seeks releases from the latter.

The court assessed damages, instead, based on:

the uplift in development value gained by infringing the claimants' rights to light and
an assessment of what a reasonable settlement between the developer and the claimants would have been if they had negotiated before the Arbor Tower was built.

This is commonly known as ‘negotiation damages’.

In assessing the ‘negotiation damages’, the court focussed on expert evidence which quantified the difference between the land value of:

The construction of a version of the Arbor Tower which did not infringe the Claimants’ rights of light (commonly known as a cut-back scheme); and
The Arbor Tower as it was actually built.

The difference between the two figures would represent the headline ‘value’ of the developer’s infringement.

The court then formed a view on the outcome of a hypothetical negotiation between the developer and the claimants, considering a wide variety of factors including:

Settlements between the developer and other neighbouring property owners
The degree of interference with the claimants’ rights
The likelihood that the claimants would have agreed to release their rights pre-construction.

The sums awarded reasonably reflected what the claimants could have negotiated if the developer had engaged with them in good faith before the commencement of construction.

Of interest and potential concern is the difference between the sums that were awarded to the claimants in respect of ‘negotiation’ damages and those which would have been awarded had damages been based on diminution in value. These were, respectively:

Mr Cooper: £350,000 vs £20,000
Mr and Mrs Powell: £500,000 vs £60,000

The delta between the two measurements of damage was £770,000 – an extremely substantial sum.

Comment

Developers without the protection of Section 203 (and their insurers) would be wise to appreciate that affected neighbours, knowledgeable in this area of law, or those guided by professionals are now more likely to base their negotiations around ‘negotiation damages’ (i.e. a share of the developers projected profit) rather than a diminution in property value. This is likely to:

Drive up the settlement value of rights of light releases, which developers (and their insurers) will generally seek to secure before or shortly after the commencement of construction work.
Make the negotiations between developers and knowledgeable potential claimants lengthier, with potential claimants (or their agents) more likely to see financial projections and other disclosure from the developer within the context of negotiations.
Increase uncertainties surrounding financial appraisals in respect of potential developments.

Indeed, right of light claims companies (who offer no win/no fee arrangements, including the use of solicitors and rights of light surveyors, to those who might have claims against developers) are hailing this decision as a success for the claimants, pointing to the significant difference in the outcome between the court’s findings on the value of the claimants’ ‘negotiation’ damages (and the applicability of that approach) as compared to what would have been the ‘diminution’ damages (which approach was rejected in any event).

In the short term, responsive behaviour of those who might have right of light claims against those undertaking large scale developments is unknown. However, insurers may look, in respect of future policies, to significantly increase the deductibles/excesses payable in respect of ‘proactive release’ strategies. They may also wish to increase their level of oversight of, and involvement in, negotiations with neighbouring property owners.