Releasing rights of light and development: 7 key questions

Author: Eidin Crowdy, Associate, Real Estate, London

In this post, we address how a property developer may investigate whether rights of light affect his or her land and if so, how to negotiate their release.  A right of light is an easement or right belonging to a landowner which allows unobstructed daylight through windows.  Proposed development which may obstruct such a right can lead to disputes unless the right is released first.  The legal and planning systems weigh up the need for natural light in existing buildings against the need for new property development in an area.

1. How do you find out whether rights of light exist in relation to your proposed development?

2. If rights of light exist, who should release them?

3. What will you give in exchange for the release?

4. What is the extent of the release?

5. What other protections do parties ask for?

6. Are there any tax consequences?

7. How do you protect your release?

1. How do you find out whether rights of light exist in relation to your proposed development?

Your rights of light surveyor can identify which neighbouring landowners should be approached in the context of the proposed development. Your lawyers may also need to be involved at the outset to establish which rights are apparent from your own or neighbouring owners' titles.

2. If rights of light exist, who should release them?

The person benefitting from the rights will need to release them to you.  This is usually the freehold owner of the land benefitting although you may also need to enter into release arrangements with other parties, for example long leaseholders or occupational tenants. It is possible for multiple parties to join together to effect the necessary release(s).

3. What will you give in exchange for the release ?

The level of any consideration is a negotiating point.  However, the starting point for monetary consideration will come from assessments undertaken by your surveyor concerning adequacy of light (the Waldram method) and appropriate valuations as to loss of amenity and diminution or gain of light.

Parties often agree mutual or reciprocal releases.  In these circumstances, the value of those releases should be considered at the commercial negotiation stage, in the context of the aggregate value of the economies being agreed.  The value of the release should also be taken into account when deciding the way the transaction is treated for tax purposes, for example as a barter transaction (see point 6 below). Where monetary consideration flows just one way but the release is reciprocal, surveyors will need to have agreed the values attributed to each of the releases, the difference between which is represented by the cash payment sum.  For example:

In mutual release arrangements, the release given by Party A is valued at £100,000 and the release given by Party B is valued at £600,000.

Party A will pay £500,000 to Party B.

Both parties will need to produce a valid VAT invoice for the respective release value if VAT is being charged.

It may be that you also agree at heads of terms stage to cover the other party's costs in relation to the deed. This will affect the amount of consideration for tax purposes.

4. What is the extent of the release?

The agreed consideration will usually be linked to the extent of the release being given, for example whether a release is limited to an agreed profile of development or is not subject to any limits whatsoever.  If an agreed profile limitation is agreed by your surveyor, detailed drawings illustrating the profile may need to be attached to the release deed.

5. What other protections do parties ask for?

A warranty that there is no other party with an interest in the land who should be joined to the deed to give an effectual release.  Where a warranty on this point is not given, a degree of comfort can be obtained from due diligence (for example checking occupational leases to ascertain whether they reserved rights of light).

A warranty that all relevant consents have been obtained to permit the release and to it being registered at the Land Registry, for example from the proprietor of a charge on the title to the property.   Depending on the terms of any restriction or security, a mortgagee may also need to be joined as a party to the deed.

A warranty that the releasing party does not own any other property (freehold or leasehold) which benefits from rights of light or air that might interfere with the proposed development.

An indemnity in respect of any costs or losses suffered arising out of any breach of warranty.

6. Are there any tax consequences?

VAT

Consider whether VAT will be charged on the consideration and whether the party or parties charging VAT have correctly opted the land over which the rights are being released.  You should speak to your advisers for guidance on which land should be opted in the context of current HMRC guidance. Valid VAT invoices equal to the value of any release being given where VAT is being charged should be issued prior to completion.

SDLT (Stamp Duty Land Tax)

You may need to pay SDLT on the release received as a purchase of an interest in land.

7. How do you protect your release?

Your lawyers will usually arrange for an application to the Land Registry.  Current Land Registry advice is that the deed releasing rights of light will be registered only against the land releasing the rights.

Note:  A report and draft legislation was published by the Law Commission in 2014 with regard to rights of light.  This made recommendations for reform based on a stated aim of balancing development interests and private property rights.  Note also that the process for releasing rights of light is separate from the process for overriding easements and other rights over land held by a local authority, under section 237 of the Town and Country Planning Act 1990 and related provisions.

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