At a glance
- Rights to light issues are becoming increasingly common, and although cases that end up in court remain rare, the consequences of disputes can be serious
- Developers who infringe neighbours’ rights to light can be forced to pay compensation or even tear down a completed building
- Zurich examines four ways of addressing rights to light issues, for brokers to discuss with their customers
The amount of natural light neighbouring property owners enjoy might seem a minor consideration for a developer embarking on a major commercial development.
Rights to light, however, are protected in law, and numerous high-profile developments have been affected by rights to light issues, including London’s Walkie Talkie tower.
The consequences of an infringement can be serious. Developers may be forced to amend their plans or pay compensation to property owners whose light has been diminished. In a worst-case scenario, they may be served with an injunction, forcing them to abandon their project, or even demolish their completed buildings.
There are various options for developers hoping to resolve rights to light issues and the benefits and pitfalls of each alternative should be considered.
1. Take no action
Before work begins on a project, a commercial developer will usually employ a surveyor at an early stage, to prepare a rights to light report, setting out how, and to what extent, the light of neighbouring properties would be affected by the building project.
If rights to light are an issue, the report will outline possible actions for the developer to take, one of which would be to simply do nothing and hope the beneficiary of the rights to light does not exercise this right. It should be noted that in the event of no insurance being taken out, a contingency fund would probably still need to be maintained by a prudent developer.
The middle-ground solution, involving insurance and negotiation, is becoming increasingly popular,”
Claire Sharp, Senior Underwriter (Legal Indemnities), Zurich
In a best-case scenario, this option could result in cost savings. However, the developer would face uncertainty throughout the development process. In the landmark Heaney case of 2010, the developer was served with an injunction even though a substantial portion of the development had been completed.
For developers who choose not to enter into negotiations, the uncertainty of whether a rights to light claim would emerge is not their only concern, as Claire Sharp, Senior Underwriter (Legal Indemnities), Zurich, explains: “If called upon to resolve a rights to light dispute, a court might not look favourably on a developer who had not done anything to try to resolve the problem.”
2. Enter into negotiations
A developer may be able to negotiate an out-of-court settlement with the beneficiary to extinguish their rights to light, and may set aside a contingency fund for such a scenario. If the beneficiary has a higher sum in mind, the developer will face financial uncertainty and the profitability of the project could be at risk.
Alternatively, the beneficiary may choose not to negotiate, and the dispute may have to be settled in court. A worst-case scenario could see the developer served with an injunction, preventing them from starting work, or forcing them to demolish works already completed.
Even if the court decides to award damages instead of an injunction, the sums involved can be significant. In the case of Tamares v Fairpoint Properties, the judge decided not to award damages on the basis of the actual loss of amenity, valued at £3,030. Instead, he decided the beneficiary should receive a figure representing a percentage of the profits derived from the infringing development, which was a much higher figure.
Claire says: “Although any attempts by the developer to negotiate may be looked on favourably by the court, as with the first option, the outcome remains uncertain.”
3. Take out an insurance policy
A developer can take out insurance to cover compensation they may be asked to pay to a beneficiary of rights to light.
Insurance can play an important role in mitigating many of the consequences of the rights to light risks that could emerge, and brokers should ask their customers to consider carefully what might happen if any of the risks outlined above emerged and they did not have appropriate cover. This policy needs to cover the full range of risks that could be caused by a right to light issue, which could include: legal expenses and other professional fees, the cost of demolishing a development or amending plans should an injunction be granted, and the potential loss of profit due to delays or amendments to the plans.
4. Take out insurance and negotiate
Rights to light – what you need to know
- A ‘right to light’ is an easement that gives property owners a right to receive a certain amount of light through windows in their buildings
- Under the Prescription Act 1832, the right is usually acquired after a building has received light for an uninterrupted period of 20 years
- There is much uncertainty as to whether an injunction or compensation (and how much) should be awarded in any particular right to light dispute
- Much depends on the extent of the loss of light, the type of property owner suffering the loss (commercial or residential) and the conduct of the developer
- If a light infringement subsists for 12 months or more without objection, then a claimant would be time barred from obtaining an injunction to remove the offending part of the development, however damages may still be claimed
- There is no statutory guidance as to how damages for rights to light should be calculated and the amount a court will award can be difficult to predict
- Damages awarded could be as high as one-third of the net profit derived from the infringing part of the development
Another option offers a middle ground between an insurance-only, or a negotiation-only, approach. This option allows the developer to negotiate releases of rights to light after the inception of the policy.
In this scenario, the developer takes out an insurance policy with an excess. This excess is based on a calculation of the sum the developer would be expected to pay the beneficiary of the rights to light to obtain a release. Such a policy offers the developer the financial protection that their insurer would pay out any amount above the excess if agreement is not reached within the excess, or if negotiations break down and the dispute has to be settled in court.
“This middle-ground solution is becoming increasingly popular,” says Claire. “It’s designed to protect developers and cover not just the compensation/damages that will be agreed but also against the worst-case scenario of a catastrophic claim if the development is curtailed or prevented and give them financial certainty.”
An opportunity for brokers
Rights to light insurance can present a real opportunity for brokers. A Zurich whitepaper on legal indemnities identified that many property lawyers prefer to work with brokers when arranging cover for their clients, and many commercial clients use their broker instead of their lawyer to source cover.
Rights to light is an important risk management issue for developers to consider. Brokers can help by ensuring that if their clients decide to take the insurance route, they engage with their broker and insurer at an early stage in order to develop a strategy for dealing with rights to light issues that may arise.
Insurance solutions for rights to light have developed rapidly in recent years, with insurers working with brokers and developers to find bespoke solutions to rights to light problems.
Zurich has one of the largest capacities in the market for legal indemnities. For more information, contact Valerie Hosty, Legal Indemnities Manager, email@example.com, or Claire Sharp, Senior Underwriter (Legal Indemnities), firstname.lastname@example.org