Residential: rights of light complexities

9 June 2016

Mark Lumley discusses the complexities of rights of light

Many circumstances can prevent a property deal from progressing, or even halt a transaction outright. Although such things were once regarded as frustrating but acceptable business risks, the insurance market has now developed solutions for a number of these scenarios.

One of the most commonly encountered issues surrounds rights of light, which can affect land acquisition, funding and ongoing development, creating problems for all stakeholders. But these can be mitigated, delivering an optimal solution for all parties.

Rights of light entitle a building’s occupants to access to light through a window, and are acquired over a period of 20 years unless title deeds say otherwise. Where a property enjoys such rights, they are generally enforceable by the freeholder and sometimes the leaseholders.

The point at which an injury to rights of light may occur generally turns on the 50/50 rule. This states that if 50% of those in a room can see 0.2% of the sky at desk height – the working plane – the room will be adequately lit. Therefore, if a construction proposal reduces the light to neighbouring properties to below this level, there may be a claim.

Having established rights of light, the logical next step is to examine the possible scenarios if these are breached:

• the neighbour may bring an injunction to prevent the breach happening
• if a building has already been constructed, a mandatory injunction may be sought to force demolition
• damages may be awarded instead of an injunction if the injury is small and can be estimated in financial terms, if adequate compensation can be made or if granting an injunction would be oppressive.

Consequences for a breach can be severe and even result in the loss of the total investment. As it avoids the need to negotiate tricky issues with stakeholders, appropriate insurance for transactional ‘pinch points’ is understandably becoming increasingly popular.

What are the specific benefits of insuring rights of light?

Consequences for a breach can be severe and even result in the loss of the total investment

Insurance should cover the costs associated with an adjoining owner making a rights of light claim against a ‘responsible’ developer (someone the insurance industry believes understands the risk from such issues, can build this into their budget and is prepared to engage with injured parties). Insurance facilitates the deal and lets the developer proceed with certainty, reassures their lender(s), helps them secure funding without adverse conditions and assists in the sale or financing of a constructed building.

The broker arranging the insurance will want to know why a party is enquiring, e.g. whether it is for an initial investigation at the feasibility stage of development, due to existing complaints from neighbours, or because the lender is raising obstacles. They will also need to know who wants insurance (the developer, lender or both) and whether the site comprises strategic land or not (under the section 237 options).

The insurance can offer compensation for loss of light; delay or stoppage of construction; loss of profit; redesign to avoid an injunctionable loss of light, or the need to seek a new planning application.

Two examples show how rights of light insurance removed an obstacle, allowing the transactions to progress.

Docklands residential tower block development

The rights of light report indicated the high chance of injunction from an adjoining Victorian property, but the owner would not engage with the developer. Rights of light insurance was taken out to cover the risk so the developer could complete the deal quickly before their option expired in a rapidly rising property market. In the event, settlement with the owner was achieved for a relatively modest sum.

Multiple high-rise residential developments

Insurers considered an area where there were a number of schemes for new residential developments along the same road. Many properties affected by a rights of light report had corresponding claims and some were future development sites. Once these negotiations had been completed, rights of light insurance was taken out to cover residual properties where the owners could not be contacted or agreement could not be reached on compensation values.

This type of insurance offers a solution to a specific problem in a transaction. It is an increasingly attractive way of enabling a deal.

Rights of light and risk mitigation achieved via insurance is an area of increased interest as developers focus on high-rise developments, but there are other transactional solutions. Deals regularly stall or collapse because of the lack of provision of representations and warranties, tax concerns and title issues, but generally speaking, all are insurable.

Mark Lumley runs the Howden Real Estate Practice

Further information

This feature is taken from the RICS Property journal May/June 2016