UK: Upward Development – The Extra Layer

Last Updated: 13 April 2016
Article by Roy Pinnock, Bryan Johnston, Emma Broad and Jane Miles

Whilst recent proposals to simplify the planning process for upward development in London will no doubt be welcomed, this article outlines some of the other issues for property developers and investors to consider when looking to intensify land use in this way.

In response to the London housing crisis the Department for Communities and Local Government and the Greater London Authority have launched a joint consultation on streamlining the planning process for upward development (i.e. the construction of additional storeys on top of existing buildings) in London. Their paper seeks "views on an innovative approach to supporting housing supply by providing greater freedom to 'build up' in London, reducing the pressure to 'build out'". Three proposals are identified for stimulating the delivery of new homes through upward extensions: a permitted development right, local development orders and/or new London Plan policies.

The proposed right is likely to be limited to building up to the roofline of adjoining buildings. It will also be excluded in the case of listed buildings (including their curtilage and, more widely, their setting). Prior approval by the local authority will apply in Conservation Areas, therefore engaging the legal duty to avoid any adverse effects other than in exceptional circumstances. As such, even with a simplified process, there will still be planning issues.

On top of these residual planning concerns there are other matters that prudent developers should consider prior to embarking upon any scheme to extend upwards.

Do you have the right to build into the airspace?

There is a presumption that ownership of a parcel of land includes the airspace immediately above to the extent that it is necessary for the ordinary use and reasonable enjoyment of that land. However, where a building is tenanted and the landlord wishes to extend upwards, it will be necessary to check that the airspace has not (either deliberately or accidentally) been demised to one of the tenants.

Whilst each case will turn on its own facts and the construction of the relevant letting documents, the Court of Appeal decisions in Davies v. Yadegar [1990] 1 EGLR 71 and Haines v. Florensa [1990] 1 EGLR 73 will be of interest. In both cases (which concerned tenant alterations and the application of the Landlord and Tenant Act 1927) the Court of Appeal held that, as the relevant letting documents specifically demised the roof, the demise extended to the airspace above. In Davis v. Yadegar Lord Justice Woolf acknowledged that it would be more difficult to determine the position where the building was a multi-let block of flats where the roof was not specifically demised to one tenant.

If the airspace has been let to a tenant then a landlord will be prevented from extending upwards during the term of the lease.

Are you committing a criminal offence?

A critical question for anyone dealing with a building which is either wholly or partially let to residential tenants is whether or not the Landlord and Tenant Act 1987 (1987 Act) applies.

It is a criminal offence to dispose of any premises to which Part I of the 1987 Act applies without first offering them to the qualifying tenants pursuant to the procedure set out in section 5 of the 1987 Act. Further, should a disposal occur in breach of the 1987 Act, the qualifying tenants may have (amongst other things) the right to compel the buyer to convey the premises to a nominated purchaser on the terms, including price, of the offending disposal irrespective of whether the premises have increased in value in the interim.

The relevance of the 1987 Act to upward extensions is starkly illustrated by the case of Dartmouth Court Blackheath Limited v. Berisworth Limited [2008] EWHC 350 (Ch).

In Dartmouth a landlord granted a lease of (amongst other things) airspace above an existing block of flats. The intention behind the letting was to facilitate upward development to create additional flats. The critical question for the High Court was whether or not the airspace formed part of the premises to which Part I of the 1987 Act applied. Mr Justice Warren concluded that the airspace was appurtenant to the building and the letting was therefore a disposal of premises to which the 1987 Act applied. As such the landlord should have complied with the procedure set out in section 5 of the 1987 Act and the proposed development could not proceed.

Ironically, the judgment in Dartmouth notes that the lease, which was granted by the owner to Berisworth (a related entity), was designed to ensure that Berisworth had an interest which would enable it to continue with the upward development in the event that the tenants of the building sought to exercise their statutory rights to enfranchise (i.e. compulsorily buy the freehold). The right of tenants to enfranchise and take control of any development is another pitfall for the unwary and one which also warrants early consideration.

Will there be interference with any rights to light?

A tricky issue for any development, but particularly for upward development, is rights to light.

A right to light is a form of easement. The right is to natural light through windows on the benefiting property, the light having passed over the neighbouring burdened property. For developers, such rights can turn into something of a "ransom strip" as aggrieved parties (whose rights to light have been or will be infringed by the proposed building works) can seek or threaten injunctions unless they receive large compensation payments for giving up those rights and allowing development to proceed.

There have been a number of recent press reports of high-profile London developments being stalled by disputes over rights to light. In a number of cases the frustrated developer has had to resort to asking the local authority to exercise its statutory powers under section 237 of the Town and Country Planning Act 1990. Whilst those powers can be used to override private rights to light to allow developments to proceed (transforming the aggrieved party's claim into one for compensation alone), a local authority is not obliged to exercise these statutory powers and therefore there is no guarantee that this remedy will be available in all cases.

A prudent developer should therefore consider and take advice on the issue of rights to light early on in the development process.

Are there sufficient reservations in the tenancy documents to allow the works to proceed?

Where a property is tenanted, great care should be taken to review the underlying letting documents to check that sufficient rights are reserved to the landlord to allow the development work to proceed.

Key considerations when looking at reservations include:

  • Whether there are any reservations at all relating to development, redevelopment or landlord's works.
  • Whether or not a reservation allowing landlord's development works relates to the building of which the premises form part, or just neighbouring land. If the latter, then it will be of no assistance in the case of an extension to the existing building.
  • Checking that, where work requires access or alterations to the demised premises, there is a suitable reservation. For example, if strengthening works are required to the existing structure and can only be done with access to the demised premises, is there a reservation allowing this? A reservation allowing works of repair is unlikely to be wide enough.
  • The interplay between the reservations and the landlord's covenants for quiet enjoyment and non-derogation from grant. It is highly unlikely that a lease will make the covenants for quiet enjoyment and non-derogation from grant specifically subject to the landlord's reservations therefore the landlord must ensure that in exercising a reservation it doesn't find itself in breach of covenant.

What construction issues need to be considered during the build?

The key construction risks to be considered by a landlord are:

  • Who will take responsibility for the design and construction interface between the existing structure and the new development works? Unless the risk is expressly stated to sit with the building contractor, the building contractor will be entitled to an extension of time and/or loss and expense under the building contract if it transpires that the design of the new works is not compatible with the existing structure and that additional works or a different working methodology has to be adopted in order for the contractor to complete the works. On the assumption the building contractor will have been given sufficient opportunity to inspect the site and carry out any surveys he believes are necessary, it may be more appropriate for the building contractor to take the interface risk. The landlord will need to ensure a specific clause to this effect is inserted in the building contract under which the upward development works are instructed.
  • As noted above, the landlord will want to ensure the upward development works are carried out with as little disruption as possible to the existing tenants and neighbouring property owners to minimise the risk of a nuisance claim and to ensure any quiet enjoyment covenants in existing leases are not breached. Aside from taking the practical step of agreeing suitable working methods, a specific clause should be inserted in the building contract obliging the contractor to take all reasonably practicable precautions to prevent any public or private nuisance. In addition, the landlord may wish to consider instructing the contractor to comply with periods of "quiet working", as well as stipulating express noise/vibration level restrictions and specifying how and when the site can be accessed and where materials and goods can be stored.
  • The assumption under a JCT building contract is that the landlord will insure both the existing structure and the works in the joint names of the landlord and the contractor (i.e. Option C insurance). There is an alternative to this, however, whereby the contractor maintains a joint names policy for the works (i.e. all risks insurance) and the landlord insures the existing structure in his sole name (and the contractor has to rely on his third party liability cover should he cause damage to the existing structure). Should the landlord wish for commercial reasons to follow the hybrid insurance approach, specific wording will need to be added into the building contract to this effect.

What is the impact of the extension on the long-term management of the building?

The impact on the long-term management of the extended building should not be overlooked. There will be a number of practical issues, for example:

  • How will any existing service charge regime and/or landlord covenants operate in relation to the extended building? For example, if the landlord retains responsibility for the structure, how, if at all, will it recover the cost of repairing the structure of the newly created floors from all the tenants in the building (both existing and new)?
  • Is there sufficient capacity from existing utility connections to service the extended building? 
  • Whilst landlords will be keen to add value to their portfolio they will not want this to be at the expense of the goodwill of their existing tenants. Properties tend to be harder to manage when populated with disgruntled occupiers. Consequently, landlords should not underestimate the importance of consulting with their tenants and working to minimise the impact of the works upon them.

What warranties or guarantees can be given to tenants of the completed development?

Structural and/or new build guarantee providers (such as NHBC) generally only grant a guarantee for a new upward development if they also have control of the guarantee for the rest of the building. Indeed, cover for an upward development is provided not on a "new build" basis but by way of an extension to the existing policy for the remainder of the building. Clearly the difficulty here is that, if the remainder of the building is without NHBC cover (or equivalent), no home warranties will be available for residential occupiers of the new upward development. 

In cases where the upward development is high value, the developer should consequently consider procuring collateral warranties from the building contractor and professional team to ensure any tenant under a full repairing lease has an appropriate means of recourse should a latent defect occur. The ability to demonstrate the availability of a suite of collateral warranties adds to the property's commercial marketability. Furthermore, giving the tenant direct recourse against the construction team will enable the landlord to be released from his development obligations under any agreement for lease.

Conclusion

The consultation paper put forward by the Department for Communities and Local Government and the Greater London Authority acknowledges that the proposals made only cover the planning aspects of upward extensions and there may be other barriers to this type of development. Those other barriers include not only the usual development considerations (e.g. funding, construction, party walls and building regulations) but also, as highlighted above, a possible additional layer of issues corresponding to the additional floors being sought.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
28 Sep 2017, Seminar, London, UK

On 26 July the FCA published its long-expected consultation paper on the extension of the SMCR to all FCA-authorised firms. The so-called "core regime" introduces the key concepts of regulator-approved senior managers, firm-approved certification staff and conduct rules applicable to virtually all staff.

3 Oct 2017, Conference, Zurich, Switzerland

As the founding Partner of the Europe-Iran Forum, Dentons Europe will once again support this year’s event. This compelling event which explores all Iran-related topics will take place in Zürich on 3rd and 4th October.

4 Oct 2017, Conference, Munich, Germany

Dentons Global Real Estate Group is delighted to be exhibiting once again at EXPO REAL, the International Trade Fair for Property and Investment which takes place on 4-6 October, 2017 in Munich, Germany.

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.