In June 08, Tim Foley explained the important decision of RHJ Ltd v FT Patten (Holdings) Ltd (1) and FT Patten Properties (Liverpool) Ltd (2) [2008] EWCA Civ 151. The decision assisted developers as the Court of Appeal took a wide interpretation of provisions in leases which were aimed at securing a landlord's rights to develop retained land and be unrestrained from claims by neighbouring tenants in respect of infringements of rights of light that might otherwise be acquired under the Prescription Act 1832.
This commercial developer-friendly position was also apparent in two previous important cases: Midtown v City of London Real Property Co [2005] EWHC 33 (Ch); and Tamares (Vincent Square) Ltd v Fairpoint Properties (Vincent Square) Ltd, [2007] EWHC 212 (Ch).
In Midtown v City of London Real Property Co, the judge refused to grant an injunction, notwithstanding that he accepted that there would be a substantial interference with the neighbouring commercial property owner's rights of light. The decision was made on the basis that to grant an injunction would put the neighbouring owner in a disproportionately advantageous position to the significant detriment of the developer. As the neighbouring owner's interest in the affected property was purely financial (by way of an investment property) any diminution could be adequately compensated by damages. The Court therefore awarded damages instead of an injunction, although the damages payable were still substantial.
In Tamares v Fairpoint Properties, the Court held that the developers had infringed the neighbouring commercial property owner's rights of light but again declined to grant an injunction and awarded the neighbouring owner damages. However, based on principles such as finding a "fair" result from a hypothetical negotiation between the parties considering the nature and seriousness of the breach, the Court held that the owner of the infringed right of light should normally expect to receive a share of the likely profit from the development (or relevant part of it). The Court therefore awarded the neighbouring owner one third of the likely development profit, reduced to reflect the minor nature of the breach.
In light of the above, rights of light practitioners again settled into their view that injunctions would tend to only be granted in either very obvious cases or ones where a party was seeking to protect the rights of light of a residential user, rather than a commercial one. Accordingly practitioners continued to advise their developer clients that, in cases where there was an adverse effect on a commercial user, rights of light could effectively be bought off, in that the Court would tend to award damages to compensate the offended commercial user rather than order that the offending property be cut back to remove the infringement.
However, this view has now been shown, at least for the time being, to be completely incorrect.
HKRUK II (CHC) Limited v Heaney
The recent case of HKRUK II (CHC) Limited v Heaney [2010] EWHC 2245 (Ch) has dealt a significant blow to the accepted view described above, that the Courts will not readily grant injunctions to cut back completed commercial buildings, and highlights the need for developers to resolve rights of light claims before commencing their development.
Background
HKRUK was the owner of a block of offices, situated on Infirmary Street in Leeds, which was originally purchased with the sole purpose of redevelopment. Mr Heaney owned the neighbouring commercial property, which was a restored Grade II listed former Victorian bank. HKRUK bought its building in 2007 with the benefit of planning permission which permitted the addition of two further floors.
Through liaising with a rights of light surveyor, HKRUK was aware from an early stage that the proposed redevelopment, specifically with the addition of the additional floors, would infringe rights of light enjoyed by the building owned by Mr Heaney. Attempts to engage Mr Heaney in correspondence with a view to reach a settlement of his potential rights of light claim were not successful and, despite never actually issuing a claim, Mr Heaney threatened to take legal action in relation to the redevelopment. In an apparent attempt to gain clarity on the issue, following completion of the works HKRUK applied to the Court for a declaration that it was free from any liability to Mr Heaney. Mr Heaney counter-claimed for an injunction or damages.
In pre-action correspondence, both parties agreed that rights of light existed and that the addition of two floors to HKRUK's building had interfered with those rights. Therefore, the only issue that was to be determined by the Court was that of which remedy, injunction or damages, should be awarded to Mr Heaney for the infringement.
Contrary to what had generally come to be expected by developers in such a case involving commercial uses, the Court awarded a mandatory injunction which required HKRUK to cut-back the two additional floors in order to eliminate the infringement of Mr Heaney's rights of light.
Rights of Light
In line with well established principles, the Court's starting point was that once an infringement had been established, Mr Heaney was entitled to an injunction unless HKRUK could persuade it that damages would be more appropriate. The burden was therefore on HKRUK to show why a mandatory injunction, which would require the additional floors to be pulled down insofar as they infringed Mr Heaney's rights of light, should not be granted. It had been widely assumed that, in exercising its discretion, the Court would generally be reluctant to grant such mandatory injunctions, particularly involving two buildings both used as commercial premises.
However, the judge considered that his discretion was far narrower than that which was generally assumed. The judge based this narrow discretion on the principles set out in the leading Court of Appeal case of Shelfer v City of London Electric Company [1895] Ch 135 which stated that damages may be awarded instead of an injunction where:
- the injury to the affected party's rights is small;
- that injury is capable of being estimated in money;
- the injury can be adequately compensated by a small money payment; and
- an injunction would be oppressive.
Rather than simply considering the above as overall guidelines, the judge held that unless all four principles were met, he was bound to grant an injunction.
The Shelfer principles
1 The injury must be small
The judge held that the injury to Mr Heaney was not small, although it was on the borderline. The judge accepted that this aspect required a degree of subjectivity and, in making his decision, therefore considered the character of Mr Heaney's property, the investment that Mr Heaney had made in restoring the building, and the extent that HKRUK's redevelopment had reduced the flow of light. The judge was not, therefore, prepared to say that Mr Heaney's injury was small.
At this point, the judge acknowledged that HKRUK would now be unable to show that all four of the Shelfer principles had been satisfied but considered the remaining principles for future guidance.
2 The injury must be capable of being estimated in money
The judge accepted that Mr Heaney's loss was capable of being estimated in money and this test was therefore satisfied.
3 The injury can be compensated by a small money payment
The judge assessed damages using the Wrotham Park basis. This is an assessment on a 'hypothetical negotiation' between HKRUK and Mr Heaney to agree a sum which Mr Heaney might have reasonably demanded for giving up his rights of light.
On the above basis, the judge said that he would have awarded the sum of £225,000, which he did not consider to be a small amount.
4 An injunction would be oppressive
Despite HKRUK's arguments that the reduction of the two additional floors would cost between £1m and £2.5m and require relocation of its tenant, the judge held that it would not be oppressive to grant an injunction.
The judge also rejected HKRUK's argument that Mr Heaney had been too slow in reacting to HKRUK's building works to warrant the grant of an injunction.
The judge felt that too much had been made by HKRUK of the costs involved and stated that an injunction would not be oppressive because:
- the infringement was not trivial;
- the infringement was carried out in the knowledge that it was actionable;
- the infringement was carried out with a view to profit, not necessity; and
- it would be "wholly wrong" for the Court to sanction HKRUK's actions and allow the developer to "buy out" Mr Heaney's right by compelling him to take compensation he did not want.
Implications of the decision
Despite each case being decided on its own merits, this decision is a clear message to developers to ensure that rights of light issues are resolved before commencing development. The decision highlights that developers cannot assume that they can "buy out" the rights of light, or other rights, of adjoining properties. The decision possibly represents a shift in the willingness of the Court to uphold an affected party's primary right to an injunction.
HKRUK has recently been granted permission to appeal. Whist HKRUK is appealing the decision to grant an injunction requiring the building to be cut back, Mr Heaney is crossappealing the judge's findings on the quantum of damages which would be awarded in place of such an injunction. The appeal should not, therefore, dampen developers' unrest when factoring in rights of light into the costs of redevelopment.
Clyde & Co's Keith Conway recently acted and advised a commercial property owner on a successful settlement concerning a development which was substantially progressed and would have significantly affected some parts of their building's rights of light. Clyde & Co's property litigation team, both in London and in Guildford, can help with any rights of light disputes and our team will be able to advise on any "neighbourly issues" raised.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
