At a glance
- Developers can manage or cap their exposures with rights-of-light insurance as part of an overall risk management strategy
- Rights-to-light claims are just one of many potential real estate legal pitfalls that can add substantial costs and delays to a development project
- Zurich’s policy can provide financial certainty for developers against consequences of third-party challenges on grounds of rights-of-light infringements
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Rights-to-light is often an issue that developers relegate to the shadows, but it is sometimes these less-heralded risks that can cause a nasty surprise later in the construction process.
As part of an overall risk management strategy, rights-to-light insurance enables a developer to manage and cap an exposure on its balance sheet, providing financial certainty against the worst-case scenario – a third party successfully obtaining an injunction against a development.
A 2010 landmark case between a Leeds developer and a local landowner, better known as the Heaney case, illustrated the potential severity of the consequences arising out of rights-to-light being enforced in respect of a completed development.
An injunction was awarded by the High Court requiring the developer to remove part of two already-built floors of an office block, which the developer appealed. Although, in the end, the developer did not have to take part of the building down; instead, the developer agreed a financial settlement out of court with the third party.
“Neighbours can hold developers to ransom by claiming their right to light and this can be very costly and see potential projects stopped completely,” said Heidi Pfleger, Senior Legal Indemnities Underwriter at Zurich.
What is a right to light?
A ‘right to light’ is an easement that gives landowners the right to receive light through defined apertures in buildings on their land. The owner of land that is burdened by the right cannot substantially interfere with it – for example by erecting a building in a way that blocks the light – without the consent of the benefiting owner
Heidi added: “The threat to the developer of an injunction significantly strengthens the third party claimant’s negotiating position. The Heaney case was a landmark case, but it also illustrates that most third party claimants, in the end, are willing to accept monetary payments by way of settlement.
“Although most third-party claimants will have their price for settlement, if a neighbour does have the right to an injunction they are not obliged to negotiate and, if they refuse to do so, there is nothing the developer can do to prevent an injunction being enforced.”
Living in the shade
Potential rights-of-light claims should not come as a surprise for developers, though, as before a spade is dug in the ground the owner of any well managed development will instruct a specialist rights-of-light surveyor to prepare a report at an early stage to see if there are any concerns that third-party rights-of-light may be infringed.
Whilst it is possible to get ground up cover, which is not subject to any excess, each development is assessed by Zurich on a case-by-case basis and may require an excess – while the surveyor’s rights-of-light report will allow the developer to assess the need and benefit of taking out insurance to manage their exposure to the identified risks.
As well as taking out the more usual all-risks/liability construction insurance policies, developers should assess their rights-of-light exposure and consider rights-of-light insurance as a tool for managing their risk
Heidi Pfleger, Senior Legal Indemnities Underwriter at Zurich
Typical types of loss covered under rights-of-light insurance are damages/compensation, legal costs and expenses, cost of altering/demolishing the development, abortive/increased/additional costs of works and, sometimes, loss in market value/loss of profits.
“As well as taking out the more usual all-risks/liability construction insurance policies, developers should assess their rights-of-light exposure and consider rights-of-light insurance as a tool for managing their risk,” said Heidi.
The Law Commission is also currently reviewing existing legislation around the right to light and an initial consultation has already been completed on the subject, which could significantly alter the legal landscape.