In the dark

A new phase of construction has been taking place in the City of London over the past few years. More developments are in the planning process, hoping to catch this redevelopment cycle while investment values are high and commercial rents are rising. Soon the City will be transformed with high-rise towers, joining the established Tower 42 and 30 St Mary Axe (the Gherkin).

Bishopsgate will be at the centre of the next generation of towers, with the owners of Heron Tower (110 Bishopsgate), the Bishopsgate Tower (the Helter Skelter) and the Broadgate Tower pushing ahead with their plans. If current proposals go ahead, these towers will be sandwiched between the Fenchurch Street tower (the Walkie-Talkie), the Willis Building, the Leadenhall Building (the Cheese Grater) and, on the other side of the river, the London Bridge Tower (the Shard of Glass) and the Multiplex Living Tower (the Electric Razor).

One of the most important issues for developers is making sure that there are no third-party rights that may prevent these ambitious projects from being built. An important third-party right is the ’right to light’. This is a right to the enjoyment of natural light through windows. Two recent decisions, one in the Court of Appeal and one in the court of first instance, provide good illustrations of the tension between the principles of real property law and the public policy endorsement of progressive redevelopment to renew our commercial centres.

Landowners who can prove substantial interference with their right to light have two remedies: they can seek an injunction from the court to stop or even remove the interference or they can claim damages to compensate for the loss in value of their land. Loss is hard to prove and the bigger stick of injunction is often the preferred choice – both for those claimants with a genuine desire to prevent development, and for those who can live with the consequences, but see it as an opportunity to negotiate a substantial payment. Negotiations are keener if the injunction threat is real, and until the recent Court of Appeal decision in Regan v Paul Properties (2005), some developers and their advisers believed the courts had moved away from preventing redevelopment. Mr Justice Peter Smith’s decision in Midtown Ltd v City of London Real Property Co (2005) was relied on as an example where the court preferred to award damages.

In that case, the partners of Kendall Freeman (formerly DJ Freeman) and their freeholder, Midtown, brought a claim against City of London Real Property, part of Land Securities, in relation to the latter’s New Street Square site. Smith J referred to the well-known case of Jaggard v Sawyer (1995) as establishing some form of trend or willingness for the courts to move away from injunctions, where appropriate. Indeed, he found that Midtown seemed interested only in money and noted that the developer had acted reasonably, holding regular meetings and providing transparency in relation to its proposed development. He referred to the site as being “a worthwhile and beneficial development”.

With hindsight, this may have been the high point of the application of the test, discussed by Lord Justice AL Smith in Shelfer v City of London Electric Lighting (1894), that an injunction would be refused where: the injury to the claimant’s rights is small; the injury is capable of being estimated and can be adequately compensated by money; and it would be oppressive to the developer to grant an injunction.

There is some apprehension that the recent Court of Appeal decision in Regan signals a return to the courts’ support of real property rights through injunctions. The case concerned a small development site in Brighton. Regan issued a claim seeking an injunction on the basis that the proposed development infringed his right to light. The judge held that there had been an infringement, but the appropriate remedy was damages and not an injunction. But the Court of Appeal agreed with Regan, requiring the developer to demolish the offending additional floor. Lord Justice Mummery pointed out that Smith LJ’s test was not endorsed by the majority in Shelfer. The continued #+ continued majority held that damages in lieu of an injunction should not be awarded “except under very exceptional circumstances”.

This emphasises the uncertainty facing both claimants and developers. The court can take a variety of factors into account, including: the disproportionate effect of granting or refusing an injunction; whether the claimant is genuinely seeking to stop the development or is using the threat tactically; and the developer’s attempts to communicate its plans in the local community and to resolve complaints.

The Shelfer principles also highlight when an injunction might be disproportionate – yet in Regan itself, the decrease in value of Regan’s flat if the development stood was £5,000-£5,500, which the Court of Appeal endorsed as not ’small’.

Contrast a decision in the same week, in Tamares (Vincent Square) Ltd v Fairpoint Properties Ltd (Vincent Square) (2006), in which an interference was characterised as ’substantial’ but, in terms of the claimant’s overall land interest, was ’trivial’, so the judge applied the Shelfer principles, refused an injunction and subsequently awarded £50,000 in damages.

Assessing the damage
If a claimant proves entitlement to an injunction, but the court exerts its discretion and refuses an order, then the claimant receives damages ’in lieu’ (derived from the Chancery Amendment Act 1858).

The question then arises as to the appropriate assessment of damages in respect of the loss of the right to prevent an infringement. Some say that the Tamares decision signifies a material move away from the usual practice of assessing damages. Others argue that parties whose rights are being infringed should be able to share in the profits unlocked for the developer by taking away those rights.

In Tamares, Gabriel Moss QC emphasised that he was investigating the outcome of a hypothetical negotiation between the parties and considered the following principles in assessing damages.

•The court must find a fair result of a hypothetical negotiation between the parties.

•The context, nature and seriousness of the breach must be kept in mind.

•The right to prevent a development gives the owner of the right a significant bargaining position. Accordingly, the owner should be expected to receive a fair percentage of the profit, but this should not be so large that the development would never have taken place.

•The court should then consider whether the ’deal feels right’.

Tamares is an interesting decision. It endorses assessments based on unjust enrichment instead of compensatory damages. However, in light of the relatively small sums of money involved and the particular circumstances of the case, there are still many issues to be clarified.

Some would suggest that there is no science to the assessment of damages in lieu of an injunction and, ultimately, it is left to whether the deal ’feels right’. Is that good enough or should the courts give greater clarity as to how these sorts of damages should be assessed?The Law Commission is currently looking generally at easements and covenants, but there are no specific plans to look at the right to light. Is this an area of law that is outdated and difficult and should be reformed before the floodgates open? Or should the law continue to develop as and when further cases are heard?

Katie Bradford is head of property and finance litigation and Will Densham is a managing associate at Linklaters