Rights of light – a hurdle for getting Britain building?

Rights of light is a specialist area of property law that often feels like it has been left in the dark ages. Whilst the proximity, height or density of a development on adjoining property may not constitute an actionable nuisance or breach of privacy, it may entitle the neighbouring property owner to an injunction to halt development if it interferes with their rights of light. This can be a powerful card for a neighbouring owner to hold, but the law in this area is complex. Matthew Weal, Shanna Davison and Hugh Le Gear of Herbert Smith Freehills shine a light on the issues.

The property sector welcomed the government's announcement in July 2024 of a new Planning and Infrastructure Bill to get Britain building and "accelerate the delivery of high-quality infrastructure and housing." Whilst planning reform holds a deserved priority on Labour's ambitious legislative agenda, the law of rights of light also deserves attention to avoid private law rights becoming the obstacle to such development.

Déjà-vu

Rights of light is often a critical issue for urban development to which developers should give early consideration in their scheme of works, and certainly well ahead of breaking ground. However, the current state of the law is complex, fragmented and cumbersome. The Law Commission commenced a project investigating rights of light in 2012, publishing its final report in December 2014. It recommended a raft of changes to the law to strike a better balance between "the importance of light and the importance of the construction of homes and offices, and the provision of jobs, schools and other essentials." Unfortunately, their recommendations were not progressed.

The timing of the Law Commission's project is notable. It followed the case of HXRUK II (CHC) Ltd v Heaney [2010] EWHC 2245 (Ch) which sent shock waves through the development and property sector. In that case, the High Court ordered an injunction in favour of a neighbouring owner, requiring a completed development to be partially demolished and cut-back to remedy infringement of the neighbouring owner's rights of light.

In 1904, the House of Lords said it "ought to be very careful not to allow an action for the protection of ancient lights to be used as a means of extorting money" (Colls v Home and Colonial Stores Ltd [1904] AC 179). And yet, that is precisely where we ended up post the Heaney case. The building in question was never cut-back following the injunction and the parties ultimately reached a commercial settlement before the case reached the Court of Appeal. But what were the consequences? Neighbouring owners with rights of light were elevated into an immensely powerful bargaining position, often not interested in preserving their light but leveraging the increased risk of an injunction to extract large payments from developers in exchange for a release. So why did the Law Commission's recommended reforms fail to get off the ground?

The role of insurance

Even before the Heaney case, rights of light indemnity insurance was one of the options available to developers facing rights of light claims. It offered cover for abortive or altered development schemes, as well as diminution in value for the developer and the costs of litigation/settlement. Post Heaney, more targeted insurance products entered the market and evolved into sophisticated models where neighbouring properties were categorised by risk and level of light lost. The insurance underwriters often required the developer to take a pro-active approach to reach a negotiated settlement with neighbouring owners determined as a lower risk for a release of their rights of light, whilst developers were prohibited from engaging with neighbouring owners in higher risk categories. The Law Commission's report in 2014 notes that insurance premiums were becoming more expensive, but they remained a primary mitigation method for developers for the decade that followed.

But we have seen a shift in the last couple of years. Perhaps it was inevitable following the Heaney case, but there has been a steady rise in opportunistic property practitioners steering  owners adjacent to development sites towards litigious action, particularly after a planning application has been submitted. The appetite for rights of light litigation has increased significantly. The sector had been poised on two particular occasions^[1] for cases challenging the method of assessing loss of light, the relevance of modern electronic lighting in offices and the appropriate remedy for any infringement. However, both cases settled leaving solicitors and surveyors without the clear judicial guidance we had hoped to receive. We continue to wait, as it is only a matter of time before a case goes the distance.

Against an increasingly litigious landscape, many underwriters exited the market for these insurance products, increasing exponentially both the premiums and excesses charged by the remaining insurers. The bespoke nature of the products now on offer mean they take much longer to put in place and developers are starting to question whether insurance remains a cost-effective method to mitigate the risks of a rights of light claim.

Is section 203 the answer?

Section 203 of the Housing and Planning Act 2016 allows the local authority to override rights and easements, including rights of light, by appropriating the development land for planning purposes. It does not extinguish the rights of light per se, but rather removes the ability of the neighbouring owner to issue a claim for infringement of them. Instead, the owner is entitled to statutory compensation under section 204. The compensation, akin to compulsory purchase, is based on diminution of value of the neighbouring land which is typically much lower than damages in lieu of an injunction. Whilst assessment of damages is not a settled matter, the usual approach is the grant of Wrotham Park damages (based on a hypothetical sum which might reasonably have been demanded by the neighbouring owner before any infringement of their rights of light, as a fair exchange for releasing them).

Once appropriated, the land can then be transferred back to the developer who continues to benefit from the overriding protection of section 203, subject to payment of statutory compensation. At first blush, it sounds like an easy win for developers, but they will need to convince the local authority that the development is an appropriate case for them to use their powers and they do not take that decision lightly. Developers often need to show the local authority that they have exhausted all reasonable steps to obtain a negotiated settlement with neighbouring owners. A dispute over settlement sums alone is unlikely to be sufficient reason for local authorities to step in.

However, where the development contains a public benefit element and the developer can demonstrate engagement with neighbouring owners in good faith to reach compromise agreements, the local authority is more likely to be supportive. By way of an example, in March 2024, the planning and transportation committee of the City of London Corporation agreed to use section 203 in relation to a development in Salisbury Square, London. The development comprised public infrastructure including courts and police headquarters, as well as office, retail and hospitality venues. Whilst the developer had successfully negotiated numerous releases of rights of light, half a dozen outstanding claims jeopardised the delivery of the scheme. Section 203 provided a way through the stalemate, but the transportation committee only agreed to use it if the settlement offers previously made to the neighbouring owners would be honoured and not reduced to the statutory compensation levels.

As rights of light insurance often becomes unavailable once a developer has approached neighbouring owners and opened discussions about a negotiated release of their rights, developers should have early conversations with the local authority to gauge their appetite for using section 203 before they engage with neighbouring owners and prejudice their position vis-à-vis insurance.

Time to revive reform?

Whilst nearly 12 years have passed, there are two particular proposals from the Law Commission's 2014 report which would now help to get Britain building and provide clarity for developers.

The first is a statutory test to guide the courts when damages may be more appropriate than ordering an injunction. The Law Commission proposed that:

A court must not grant an injunction to restrain the infringement of a right to light if doing so would be a disproportionate means of enforcing the dominant owner’s right to light, taking into account all of the circumstances including:

(1) the claimant’s interest in the dominant land;

(2) the loss of amenity attributable to the infringement (taking into account

the extent to which artificial light is relied upon);

(3) whether damages would be adequate compensation;

(4) the conduct of the claimant;

(5) whether the claimant delayed unreasonably in claiming an injunction;

(6) the conduct of the defendant;

(7) the impact of an injunction on the defendant; and

(8) the public interest.

This would clarify the position for both developers and neighbouring owners, particularly where the latter's priority is to protect its right to light, whilst de-risking an empty threat of an injunction following Heaney.

An intricately connected recommendation is the introduction of a statutory Notice of Proposed Obstruction ("NPO") to flush out a neighbouring owner's objectives and further de-risk a late application for an injunction once a development is underway or completed. It envisages developers serving an NPO on neighbouring owners who hold a proprietary interest in their land to inform them about a proposed development. If a neighbouring owner fails to issue and serve court proceedings for an injunction by the deadline specified in the NPO, they will lose the right to pursue an injunction for infringement with their right of light for a period of 10 years. The deadline in the NPO must be at least 8 months after service of it and if a neighbouring owner does not issue court proceedings for an injunction within that period, it does not lose its right of light or the ability to sue for damages. It would, however, lose the powerful threat of injunction proceedings and the ransom value attached, but this redresses the balance where the primary objective of the neighbouring owner is a financial payment. Once served, an NPO would be registrable as a local land change and therefore bind successors in title to the neighbouring owners.

These two recommendations are low hanging fruit in our view. They do not require a complete overhaul of the law of rights of light but can be implemented as discrete proposals. However, the benefit to developers is clear. Whilst they do not address the method of measuring infringement or appropriate damages, they would bring clarity to assessing the risk of an injunction. That clarity should also make it easier for an underwriter to price an insurance product profitably, but hopefully at a lower premium.

A new protocol for early negotiation

The recent launch of the Rights of Light Protocol (the "RoL Protocol") aims to provide a clear framework for developers to follow to resolve potential rights of lights claims quickly and cost effectively. The RoL Protocol has been endorsed by the RICS and forms part of their latest edition of the RICS Rights of Light Guidance Note (effective from 1 June 2024).

The RoL Protocol consists of three steps, each with detailed guidance:

Step 1: Introductory Letter and Initial Response

Step 2: Exchange of Information

Step 3: Dispute Resolution

It is hoped that most claims will be resolved during the final stage. However, if at any point a party considers that the discussions are not progressing, they may issue a formal Letter of Claim and progress traditional litigation, although the ROL Protocol actively encourages alternative dispute resolution. It is strongly advised that solicitor's advice is obtained before escalating matters to this stage.

The terms of any rights of light indemnity insurance policy must be carefully considered before taking any steps under the RoL Protocol. An invalidated policy may prevent a developer from being able to insure against the risk in future, which may have detrimental consequences for the overall scheme - in particular where future funding is required and insurance is a requirement of the lender.

The RoL Protocol presents a sensible process for early engagement against the current state of the law where both parties are interested in negotiating a release of rights of light. Anything that promotes a commercial settlement in these circumstances and avoids burdening the courts where the true priority is a financial payment, is a good thing. Its role in rights of light disputes will only become more prevalent should the two recommendations from the Law Commission highlighted in this article become law.

Don't overlook tenants 

In all cases, prevention of rights of light is better than the cure. Developers often seek advice about steps they can take to stop the clock running on prescriptive rights for third-party owners before they crystalise into a right of light, yet the position vis-à-vis their tenants of adjoining property can be overlooked. Rights of light can be excluded easily in leases, but inconsistencies in the drafting can lead to rights being inadvertently granted to tenants which prejudice development plans without a further negotiated settlement.

Our five tips for lease drafting are:

1. Ensure consistency across the lease portfolio. Where possible, avoid any amendments to rights of light provisions which may have an unintended effect.
2. Exclude from the lease section 62 of the Law of Property Act 1925. This avoids the risk that any right of light enjoyed by the landlord has been impliedly passed to the tenant on grant of the lease.
3. Reserve rights of light to the landlord and avoid contradicting provisos. For example, a reservation which states that the landlord (or those authorised by it) can carry out a development, notwithstanding the effect on rights of light and air, PROVIDED THAT such development does not have a material effect on the tenant's use and occupation of the premises, or alternatively that such disruption is kept to a minimum or words to that effect. The inclusion of such provisos could give the tenant a right to object to the development or impose positive covenants on the landlord which are impossible to satisfy.
4. Confirm that the tenant's enjoyment of any rights of light is by consent only. This meets the requirements of section 3 of the PA 183 and prevent prescriptive rights arising.
5. Pay close attention to definitions. Check whether consents to carry out developments extend to a landlord's neighbouring property (as at a certain date, or from time to time) and/or third-party owners of neighbouring land, including who can carry out such developments on behalf of such owners. Often, developments are carried out by associated development companies, and therefore the lease drafting should be wide enough to cover these entities.

This article was originally published by The Law Society: Property in Practice (Issue 88 September 2024)