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PROPERTY CONFERENCE 2018 wi l b e

. uk rforce.co


Wilberforce Chambers Property Conference 2018 We Built This City: Urban Development in the 21 st Century Tuesday 8 May 2018

Š Wilberforce Chambers 2018

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Contents Page 5

Programme

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Speakers

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“It’s Not Unusual”: A look at common clauses in development agreements how to draft them, how to construe them and how to argue for the meaning you need Jonathan Seitler QC

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“Please Release Me”: Damages in development disputes Tiffany Scott QC

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“I Want To Take You Higher”: Rooftop developments Julian Greenhill QC

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“Don’t Underestimate The Things That I Will Do”: Statutory undertakers and impediments and opportunities for developers James McCreath

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Contacts

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Programme 1.30pm

Registration and refreshments

2.00pm

Welcome from the chairperson Charlotte Black

2.10pm

“It’s Not Unusual”: A look at common clauses in development agreements – how to draft them, how to construe them and how to argue for the meaning you need Jonathan Seitler QC

2.35pm

“Please Release Me”: Damages in development disputes Tiffany Scott QC

3.00pm

“I Want To Take You Higher”: Rooftop developments Julian Greenhill QC

3.25pm

Break

3.55pm

Workshops Workshop 1 “Stand And Deliver”: Ransoming developments Joanne Wicks QC and Jamie Holmes Workshop 2 “Appetite For Destruction: Is It So Easy?”: The 1954 Act – enabling redevelopment of land subject to business tenancies Zoë Barton and Benjamin Faulkner

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Workshop 3 “Try A Little Harder”: Unreasonable endeavours, overage and conditional contracts Mark Wonnacott QC and Harriet Holmes Workshop 4 “The Ties That Bind”: Restrictive covenants Martin Hutchings QC and Charlotte Black 5.10pm

“Don’t Underestimate The Things That I Will Do”: Statutory undertakers and impediments and opportunities for developers James McCreath

5.35pm

“You Know That I’m Fast And Loose”: The “5 minute pitch” – gamechangers for developers Chaired by Charlotte Black Pitches from Joanne Wicks QC, Martin Hutchings QC, Mark Wonnacott QC and Harriet Holmes

6.00pm

“Closing Time” from the chairperson Charlotte Black

6.10pm

“Red Red Wine”: Drinks reception

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The Speakers Jonathan Seitler QC (Deputy Head of Chambers) This year Jonathan won the Legal 500 Award for Real Estate, Environment and Planning Silk of the Year to add to the Chambers & Partners Real Estate Silk of the Year Award which he won on three separate occasions, in 2007, 2010 and 2015. Jonathan is immensely popular not just for an ability to work hard and deliver it swiftly and accurately (and with just about the right level of detail) but also for his skills in winning the confidence, and settling the nerves, of even the most hot-headed client. Julian Greenhill QC Julian is an experienced litigator and advocate with a track record of delivering sound advice and achieving success for his clients. The core of Julian’s practice lies in property, commercial and professional liability litigation. Often his cases straddle these different fields. Julian prides himself on handling often complex cases in an approachable and user-friendly manner. Persuasive advocacy, both oral and written, is central to Julian’s objective in every case. Recent editions of the leading directories have described Julian as “an instructing solicitor’s dream”, “superb value for money”, “phenomenally efficient”, and “a very good team player”. Tiffany Scott QC Tiffany specialises in property litigation, commercial claims, trusts and estates disputes, and professional liability litigation. She is highly recommended in these areas in The Legal 500 and Chambers & Partners with comments this year including “a great advocate who is very good at dealing with complex legal issues”, “responsive, thorough and knowledgeable” and “well capable of being a ferocious litigator cross-examiner”. She enjoys working as part of a litigation team, and is known for being ‘user-friendly’, as well as for her meticulous preparation of cases, attention to detail and firstrate drafting skills. 7


Charlotte Black Charlotte is an experienced specialist property litigator, whose practice encompasses all aspects of real estate disputes and related professional negligence. Within just a few years of starting at the Bar, Charlotte was recognised in Chambers & Partners as an “up and coming junior” in real estate litigation and praised for her “great advocacy and helpful approach”. She is now described as “brilliant” in Who’s Who Legal and is also recommended as a leading property junior in Legal 500 and praised for being “particularly clear and precise in relation to the complexities of dilapidations”. James McCreath James has a growing reputation as an up and coming junior in chambers’ core areas, with a practice focusing on commercial disputes, property, pensions, trusts, and associated professional liability. He was the first junior of his call to be ranked in Chambers & Partners’ Commercial Chancery category and is praised in the guide for his communication skills, his ability to get on top of the details of a case, and his attention to client service. He was also “highly recommended” in Legal Week’s 2016 ‘Stars at the Bar’.

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“It’s Not Unusual”: A look at common clauses in development agreements Jonathan Seitler QC

1.

“Faith” - Good faith clauses: 1.1.

They say there is no implied term of good faith: but it certainly has close cousins, such as duties of fidelity in joint ventures and the “Braganza duty (Braganza v BP Shipping Ltd [2015] UKSC 17), Yam Seng Pte Ltd v International Trade Corp Ltd [2013] 1 All ER (Comm) 1321;

1.2.

Meaning of express good faith clause: (surprisingly insensitive to individual wording: see, Horn v Commercial Acceptances [2011] EWHC 1757) (a)

Berkeley Community Villages v Pullen [2007] 3 EGLR 101: ‘Fair and open dealing’ / faithfulness to an agreed common purpose;

(b)

CPC Group v Qatari Diar Real Estate [2010] EWHC 1535: the parties must adhere to the spirit of the contract, to observe reasonable commercial standards of fair dealing, to be faithful to the agreed common purpose, and to act consistently with the justified expectations of [the other party]”. This might precludes a party from ‘cynical resort to the black letter’ (Overlook v Foxtel (NSW) ;

(c)

But this does not mean that a party must subordinate its own interests to prefer the interests of the other party but it does require each party to recognise both parties’ legitimate interests in the fruits of the contract and adhere to its ‘spirit. 9


When the ‘spirit’ and an express embedded financial advantage collides, the latter prevails: Gold Group v BDW Trading [2010] EWHC 1632, MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2016] EWCA Civ 789, Apollo Window Blinds Ltd v McNeil [2016] EWHC 2307, Astor Management AG v Atalaya Mining plc [2017] EWHC 425. 1.3.

1.4.

It means that a party is at risk if it: (a)

Is not transparent – Horn or hacks and snoops: Bristol Groundschool Ltd v Intelligent Data Capture Ltd [2014] EWHC 2145 or goes behind the other’s back: Al Nehayan v Kent [2018] EWHC 333;

(b)

Tries to frustrate the purpose of the agreement - Berkeley v Pullen;

(c)

Lulls the other side into a delusion - Costain Ltd v Tarmac Holdings Ltd [2017] EWHC 319, Yam Seng Pte;

A breach of duty of good faith does not always involve bad faith.

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2.

“You can’t always get what you want” - Endeavours: 2.1.

Location, location, location: there will always be a level of uncertainty about the scope of an endeavours clause because its meaning in a particular context will always depend on the precise terms of the obligation, the other terms of the contract and the commercial context in which the contract was originally made. In Jet2.Com Ltd v Blackpool Airport Ltd [2011] EWHC 1529 it was said that "The meaning of the expression remains a question of construction not of extrapolation from other cases… the expression will not always mean the same thing."

2.2.

Reasonable endeavours: although there will be a purely objective standard where the contract expressly spells it out (such as where the requirement is to procure “with all reasonable endeavours as would be expected of a normal prudent commercial developer experienced in developments of that nature” – as per EDI Central Ltd v National Car Parks Ltd [2010] CSOH 141), the objective test was rejected by the House of Lords in P&O Property Holdings Ltd v Norwich Union Life Insurance Society (1994) 68 P&CR 261 and see: Minerva (Wandsworth) Ltd v Greenland Ram (London) Ltd [2017] EWHC 1457 In law, the person subject to the reasonable endeavours obligation must be judged against the standard of a reasonable person, in that situation, desiring that outcome, but also balancing factors personal (i.e. subjective) to it. In the words of Rougier J in UBH (Mechanical Services) Ltd v Standard Life Assurance Co [The Times, 13 November 1986], “In the present case … [the persons subject to the reasonable endeavours obligation] were obliged to put in one scale the weight of their contractual obligation … and in the other they were entitled to place all relevant commercial considerations …. In relation to any proposed course of action, the chances of achieving the desired result would also be of prime importance.”

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A person subject to a reasonable endeavours obligation can take into account the financial effect upon itself of securing the outcome that it is obligated to use reasonable endeavours to bring about: see Phillips Petroleum Co UK Ltd & Ors v Enron Europe Limited [1997] CLC 329. In P&O Property Holdings Kennedy LJ said that he found it “impossible to say that they [i.e. the contract terms] impose on the buyer a contractual obligation to disregard the financial effect on him …. when deciding how to discharge his obligation to use reasonable endeavours ..” The party can take into account not only a direct detriment that arises from effecting that outcome but also more speculative potential downsides, such as (i) the effect on existing relationships with third parties; (ii) its own reputation in the relevant market; and (iii) the cost and uncertainty of any litigation with third parties that might arise out of seeking such outcome. However, where the contract actually specifies certain steps have to be taken as part of the exercise of reasonable endeavours, those steps will have to be taken, even if that would otherwise involve the sacrificing of that party’s own financial interests: see, Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292 (Comm). In Bristol Rovers (1883) Ltd v Sainsbury's Supermarkets Ltd [2016] EWCA Civ 160 the Court of Appeal held that an ‘all reasonable endeavours’ obligation had to yield to an express provision concerning the circumstances in which a specific act of endeavour had to be taken. The imperative to fund a reasonable endeavours obligation is not itself subject to the flexibility of ‘reasonable endeavours’? In Ampurius NU Homes Holdings Ltd v Telford Homes (Creekside) Ltd [2012] EWHC 1820 (Ch), a party was obligated to use its reasonable endeavours to procure completion of certain works, by a certain date or as soon as reasonably possible thereafter. Roth J said that “the qualification of ‘reasonable endeavours’, as opposed to an absolute obligation to complete, is designed to cover 12


matters that directly relate to the physical conduct of the works, thereby providing an excuse for delay in such circumstances as inclement weather or a shortage of materials for which the Defendant was not responsible. The clause does not, in my view, extend to matters antecedent or extraneous to the carrying out of the work, such as having the financial resources to do the work at all.” See also, Astor Management AG v Atalaya Mining Plc [2017] EWHC 425 Accordingly, the lack of funding did not in itself excuse the Defendant’s failure to perform. See also Arsenal Football Club Plc v Reed [2014] EWHC 781. 2.3.

All reasonable endeavours: the use of the word ‘all’ suggests that the party subject to the ‘all reasonable endeavours’ obligation must try multiple approaches to achieve the contractual objective, rather than just exhaust one such approach and then leave it at that: see Dany Lions v Bristol Cars [2014] EWHC 817 and CPC Group Limited v Qatari Diar Real Estate Investment. However, there are also important similarities between all reasonable endeavours and reasonable endeavours: by analogy with Phillips Petroleum but also basing himself on P&O Property Holdings, Lewison J (as he then was) ruled in Yewbelle Limited v London Green Developments Limited, Knightsbridge Green Limited [2006] EWHC 3166 (Ch) that a party subject to an obligation to use ‘all reasonable endeavours’ was not “required to sacrifice its own commercial interests”. This approach was mentioned in the Court of Appeal [2007] EWCA Civ 475 without demur and the proposition that Lewison J had applied the wrong legal test in judging whether the appellant had used all reasonable endeavours, was rejected. However, dicta to the contrary exist in Jet2.com Ltd v Blackpool Airport Ltd [2011] EWHC 1529.

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A lively debate exists about whether ‘all reasonable endeavours’ is half way (or at some point) between ‘reasonable endeavours’ and ‘best endeavours’ or whether it means the same as best endeavours’. The short but unworldly answer is that ‘all reasonable endeavours’ and ‘best endeavours’ mean much the same thing as regards the extent to which a party can take into account its own financial interests (it can, in both) – see Yewbelle - but they mean different things as regards the number of alternative courses of action a party needs to take – see Rhodia International. For practical purposes, therefore, there is a spectrum: ‘best endeavours’ is the most onerous type of endeavours obligation; ‘all reasonable endeavours’ is somewhere in the moderate centre; ‘reasonable endeavours’ is the least onerous: Jolley v Carmel Ltd [2000] 2 EGLR 154. 2.4.

Best endeavours: Best endeavours are distinguishable from ‘reasonable endeavours’ and ‘all reasonable endeavours’ in that they do require a party, in some circumstances, to act against its own commercial interests. Certainly ‘best endeavours’ can be contrasted with second-best or ‘half-hearted endeavours’, which will amount to a breach of the obligation: see Sheffield District Railway Co v Great Central Railway Co [1911] 27 TLR 451. In Jet2.com in the Court of Appeal [2012] EWCA Civ 417, in which it was held that an airport operator was obligated to open outside its normal operating hours to comply with a best endeavours obligation, notwithstanding that the airport would incur a loss from taking that step, Longmore LJ said, "the fact that [a party] has agreed to use his best endeavours pre-supposes that he may well be put to some financial cost, so financial cost cannot be a trump card to enable him to extricate himself from what would otherwise be his obligation".

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Best endeavours requires the party subject to such an obligation to try all available means to achieve the contractual objective but it does not require anything which might imperil that party’s solvency, for that would be likely also to imperil that objective too: see, Terrell v Mabie Todd and Co. Limited [1952] 69 RPC 234). 2.5.

A party subject to an endeavours obligation does not have to keep using those reasonable endeavours when the endeavours are producing a return that is disproportionately small compared to the efforts put in. Nobody subject to an endeavours obligation of whatever type is going to be expected to apply endeavours when they are more likely than not to come to nought (or very little): see Rhodia and Dany Lions.

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3.

“God only knows”: Force majeure 3.1.

Force majeure clauses are seeking to exclude or limit one or both parties from performance (by allowing it to cancel the contract, suspend its duties under it or extend its time for performance) in the event of something outside the control of the party who might take the benefit of it, happening.

3.2.

There will be a force majeure clause and a then definition e.g: “The Seller shall not be considered to be in default or in breach of its obligations under this Agreement to the extent that performance of such obligations is prevented or delayed by an event of Force Majeure. If the Seller considers that an event of Force Majeure has occurred, it shall notify the Purchaser in writing, indicating the nature and expected duration or effect on the Seller’s performance of the Force Majeure event in question, it being understood that the Seller shall take reasonable measures which are available to it to minimise the effect of such event on the performance of its obligations hereunder. The Anticipated Completion Date shall be extended for a period of time equal to the delay in performance by the Seller caused by the Force Majeure event. …… Force Majeure means any event or circumstance which is beyond the reasonable control of the Seller, and which was not the result of the fault or negligence of the Seller, which prevents the Seller’s performance of its obligations in accordance with the Agreement …. and includes without limitation …. Breach of contract by any contractor or subcontractor of the Seller, or any failure or inability of any such contractor or subcontractor to perform for any reason any obligation pursuant to its agreements with the Seller, whether such failure or inability is due to the fault of the contractor or subcontractor or is otherwise excused due to force majeure or for any other reason …”

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3.3.

A force majeure clause: (a) Must be incorporated into the contract – a course of dealing or the practice of the market may not be enough; (b)

Must be clear and unambiguous (especially if seeking to exclude a liability for negligence); and

(c)

Will be construed contra proferentem;

not so as to defeat the central purpose of the agreement; 3.4.

The burden is on the party seeking to rely on the clause to prove that it responds to (i) the obligation which it purports to exclude; (ii) the liability which it purports to restrict; (iii) the events which are said to have happened; and

3.5.

Canons of construction: (a)

Being ‘prevented’ from making full performance (as opposed just to being ‘hindered’ in performance or full performance being ‘delayed’) means physical or legal prevention, not just performance becoming more unprofitable;

(b)

The words ‘while every effort will be made to carry out the contract’ at the start of a force majeure clause, mean that reasonable efforts on the part of the party seeking to rely on it is a condition precedent to such reliance;

(c)

The words ‘or any other causes beyond the parties’ control’ at the end of a force majeure clause, after the description of a series of events which it covers, are not 17


to be construed ejusdem generis - on the contrary, they are to be taken to refer to anything with which the party in question was likely to be concerned; 3.6.

Extension notices must comply with express requirements in the contract associated with them, having regard to the purpose of those requirements, in the normal way, in accordance with the reasonable recipient test. If the notice does not comply with the contractual requirements for it, by failing to set out what extension is sought under which of two overlapping contractual clauses - it is as if it has not been served at all the receiving party has no obligation to seek further particulars and is entitled to treat an inadequate notice as a nullity. A requirement to set out the circumstances of force majeure events requires different such events to be ascribed their respective contributory roles in the relevant delay: if there is reliance on more than one event of Force Majeure, the Seller is obliged to indicate the nature of each such event, if such event is continuing how long it is expected to continue and, if it has finished, what effect it has in terms of increased net delay in the Seller's performance. This follows simply from the need for the receiving party to know where he stands because the purchaser has to be able to tell from the purported notice exactly which clause is being relied upon and the exact temporal effect on the Anticipated Completion Date.

3.7.

It is implied that a party intending to rely on a force majeure clause which requires reliance upon it to be notified to the purchasing party, will effect such notification as soon as, or at least within a reasonable time of, realising that the notification was on the cards;

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It also (probably) implied that the party on the receiving end of a force majeure notice can require, as a condition of the proposed extension, the evidence which forms the basis of both the need to serve that notice and its contents, including the apportionment exercise.

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4.

“A little bit more”- Overage: 4.1.

We are talking here about the simple case of a contractual overage. Protection by restrictive covenant raises its own issues (to be explored): Cosmichome Ltd v Southampton City Council [2013] EWHC 1378 (Ch);

4.2.

Every word counts: Micro Design v BDW [2008] EWCA Civ 448; Harris v Berkeley Strategic Land Ltd [2014] EWHC 3355 (Ch) and as long as you don’t get tied up in an unaccountable, unappealable expert process, each word can be made to work for you: Walton Homes Ltd v Staffordshire CC [2013] EWHC 2554 (Ch), a salutary tale.

4.3.

The draftsperson is on the line unless the overage is secured: candidates? (1) positive covenant (NOTE Rhone Trust -v- Stephens [1994] 2 AC 310; (2) Restriction; (3) charge; (4) Right of pre-emption registered as a class C IV charge; (5) vendor’s lien. Slam dunk negligence to get this wrong: Akasuc Enterprise Limited, Choudhury v Farmar & Shirreff [2003] EWHC 1275 (Ch).

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“Please Release Me”: Damages in development disputes Tiffany Scott QC 1.

Developments of land often involve interference with the property rights of owners of adjacent land. The development might give rise to trespass, or nuisance by interference with rights of light or the obstruction of a right of way, or it might be in breach of a restrictive covenant. If an injunction is refused by the Court the only remedy available is an award of damages.

2.

The purpose of damages is usually said to be to provide the claimant with a sum which will, so far as money can do so, place him in the position in which he would have been if the injury had not been committed (Livingstone v Rawyards Coal Co (1880) 5 App Cas 25). They are primarily compensatory in nature, i.e. designed to compensate the claimant not to punish the defendant. The profit made by the wrongdoer is not considered to be relevant as such because it does not give rise to a loss to the claimant. Damages in tort are generally intended to place the claimant as nearly as possible in the same position as he would have been in if the tort had not been committed.

3.

These principles can be readily applied in situations where some tangible loss has been sustained, for example where real property has been damaged or taken by a trespasser (as in Livingstone itself). Their application is less obvious in situations where there has been an invasion of rights to intangible moveable or immoveable property but there has been no pecuniary loss or physical damage suffered. “User damages”

4.

In trespass claims where a defendant has made valuable use of someone else’s land without causing any diminution in its value the landowner is entitled to damages measured as what a 21


reasonable person would have paid for the right of user (Whitwham v Westminster Brymbo Coal and Coke Co [1896] 2 Ch 538, Stoke-on-Trent City Council v W&J Wass Ltd [1988] 1 WLR 1406). It is no answer in such cases for the wrongdoer to show that the property owner would probably not have used the property himself had the wrongdoer not done so (see The Mediana [1900] AC 113 at 117 per Earl of Halsbury LC – a defendant who has deprived the claimant of one of the chairs in his room for 12 months cannot diminish the damages by showing that the claimant does not usually sit on that particular chair or that there were plenty of other chairs in the room). Damages in lieu of an injunction 5.

In the types of case just mentioned the Courts have treated “user damages” as providing compensation for loss, albeit not loss of a conventional kind. However where an unlawful use is made of property and the right to control such use is a valuable asset, the owner suffers a loss of a different kind which calls for a different method of assessing damages. The wrongdoer prevents the owner from exercising his right to obtain the economic value of the use in question, and should therefore compensate him for the consequent loss. He takes something for nothing, for which the owner was entitled to require payment.

6.

An award of damages in lieu of an injunction under Lord Cairns’ Act (the Chancery Amendment Act 1858) enabled the Court of Chancery to grant damages, i.e. monetary relief for the breach of a common law obligation. In all cases in which the Court has jurisdiction to entertain an application for an injunction it can award damages to the claimant either in addition to or in substitution for the injunction, and damages are to be assessed in such manner as the Court directs (see now section 50 of the Senior Courts Act 1981).

7.

As Millett LJ explained in Jaggard v Sawyer [1995] 1 WLR 269 at 284:

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“Damages at common law are recoverable only in respect of causes of action which are complete at the date of the writ; damages for future or repeated wrongs must be made the subject of fresh proceedings. Damages in substitution for an injunction, however, relate to the future, not the past. They inevitably extend beyond the damages to which the plaintiff may be entitled at law.” 8.

So damages in lieu are a monetary substitute for an injunction. They seek to give an equivalent for what is lost by the refusal of the injunction and the power to award them is dependent on the Court having jurisdiction to grant an injunction. Arguably the Court must also have before it an application for an injunction which it has decided to withhold – see Morris-Garner & Anr v One Step (Support) Ltd [2018] UKSC 20 at [45] per Lord Reed (with whom Lady Hale, Lord Wilson and Lord Carnwath agreed), who said obiter that although the point did not arise for decision in the case before him he would “hesitate” before endorsing Lord Walker’s statement in Pell Frischmann Ltd v Bow Valley Iran Ltd [2009] UKPC 45, [2011] 1 WLR 2370 at [48] that it is not necessary that an injunction should actually have been claimed in the proceedings).

9.

The jurisdiction to grant damages in lieu is equitable in nature. The claimant must first establish a case for equitable relief not only by proving his legal right and an actual or threatened infringement by the defendant, but also by overcoming all equitable defences such as laches, acquiescence or estoppel (Jaggard v Sawyer at 287). “Release fee” / Voluntary Release Damages / Negotiating Damages

10.

In the line of cases starting with Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798 awards of damages have been made based on a hypothetical release fee, in the exercise of the jurisdiction under Lord Cairns’ Act, in substitution for an injunction that could have been granted to prevent interferences with property rights and breaches of restrictive covenants over land.

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11.

Wrotham Park itself concerned a development in breach of a restrictive covenant, where the estate sought an injunction restraining the building of houses and the developer pressed on in the face of objections. Brightman J refused the injunction and there was no diminution in value of the estate as a result of the breach and the claimants could point to no financial damage or other form of loss. The Judge referred to the trespass cases, where user damages were awarded, and noted that damages in lieu should be designed to be a preferable equivalent for an injunction and an adequate substitute for it. He noted that the developer could have carried out the development lawfully if it had obtained a relaxation of the covenant and concluded that a just substitute for an injunction would be such sum of money as might reasonably have been demanded by the claimant from the developer as a quid pro quo for relaxing the covenant (at 815). That measure was said to be appropriate notwithstanding that the claimant would not have been willing to bargain for the relaxation of the covenant.

12.

There was evidence before the Court that landowners whose property stood in the way of a development commonly demanded a half or a third of development value (perhaps a reference to the Stokes v Cambridge principle, following Stokes v Cambridge Corporation (1962) 13 P&CR 77). However the Judge noted that the claimant had made no protest when the land was sold to the developer as housing land, and the developer had paid for it on that basis. He concluded that 5% of the anticipated profits from the development (which were taken to be the same as the actual profits) was “the most that is fair”.

13.

Wrotham Park is a source of potential confusion because of the opacity of its reasoning –Lord Reed in Morris-Garner said that he would “abjure the use of the term ‘Wrotham Park damages’” in his judgment, and that the case was in his view “of little more than historical interest” (at [3]). It resembles the earlier cases in which user damages are awarded in that the use to which the defendants wrongfully put their property infringed a valuable right held by the claimant to control that use. That justified an award under Lord Cairns’ Act based on the value of the right infringed since the refusal of an injunction effectively deprived the claimant of the benefit of that right and therefore of its value. An appropriate sum could be determined by considering 24


what the claimant could fairly and reasonably have charged for relinquishing the right voluntarily. The right is on this analysis (supported by Morris-Garner) treated as an asset with a commercial value. 14.

An analysis of the profits earned by the developer is carried out not in order to strip it of its unjust gains (which would be an award of damages on a restitutionary basis) but because of the obvious relationship between the profits earned and the sum which the developer would reasonably have been willing to pay to secure a release from the covenant. The decided cases which followed Wrotham Park in which awards of damages were made in the exercise of the statutory jurisdiction to award damages in lieu of an injunction all assessed damages according to the amount which might fairly have been charged for the voluntary relinquishment of the right which the Court had declined to enforce, subject to downward adjustment for reasons of fairness. That measure reflects the fact that the refusal of an injunction has the effect of depriving the claimant of an asset which has an economic value. But, as Lord Reed stated in Morris-Garner, those cases do not lay down any general rule as to how damages should be quantified. It is for the Court to judge what method of quantification in the particular circumstances of the case will give an equivalent for what is lost by the refusal of the injunction.

15.

Various difficulties arise when considering how to assess negotiating damages. Some of the most important are set out below. Date of Assessment

16.

The date, and hence the knowledge and other circumstances, by reference to which the hypothetical price is to be assessed is a central issue.

17.

It had been said in HKRUK (CHC) Ltd v Heaney [2010] EWHC 2245 (Ch) that the Court establishes the relevant date of the hypothetical negotiation by “planting its feet in the real world� and

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ascertaining when the negotiations would need to be concluded for the development to proceed. 18.

In Lunn Poly Ltd v Liverpool and Lancashire Properties Ltd [2006] 2 EGLR 29 at [29] Neuberger LJ, while declining to lay down any “firm general guidance” said: “Given that negotiating damages under the Act are meant to be compensatory, and are normally to be assessed or valued at the date of breach, principle and consistency indicate that post-valuation events are normally irrelevant. However, given the quasi-equitable nature of such damages, the Judge may, where there are good reasons, direct a departure from the norm, either by selecting a different valuation date or by directing that a specific postvaluation-date event be taken into account.”

19.

Lord Carnwath in Morris-Garner took the opportunity, obiter and even though the Supreme Court had not heard argument on the subject of the date of assessment or whether the Court might take into account post-valuation date events, to give “more precise and principled guidance” on that question, on the basis that the Supreme Court had undertaken a detailed examination of the subject of negotiating damages [158]. He disagreed with Neuberger LJ’s comments in Lunn Poly. a. Lord Carnwath stated that account must always be taken of the nature of the claim when assessing damages. When awarding “user damages” for a once and for all trespass, the inquiry is as to the price or fee that the defendant would have been expected to pay at the time of the infringement. Logically the assumed knowledge should be limited to that which was available to the parties at the time. b. However the position is different where the award is by way of compensation for the refusal of an injunction. This is a reflection not simply of the more flexible “quasiequitable” nature of the jurisdiction but also of the different bases of the awards – 26


past, on the one hand, and future or continuing, on the other. Where the causes of the claimant’s loss are not limited to past breaches but include the Judge’s refusal of an injunction to restrain future breaches “there is no reason in principle to exclude information available to the parties up to the time of the Judge’s decision” [159]. 20.

In support of his proposition Lord Carnwath cited Bwllfa and Merthyr Dare Steam Collieries Ltd (1891) v Pontypridd Waterworks Co [1903] AC 426, which established that in assessing compensation for loss caused by limits to mine-working imposed under a statutory notice, the arbitrator was entitled to take account of evidence of increase in prices since the date of the notice. He was “not required to conjecture on a matter which has become an accomplished fact” (at 431 per Lord Macnaghten). Lord Carnwath noted that the statutory compensation in Bwllfa was not for an assumed sale of the coal at the date of the notice but for “a continuing embargo on working”.

21.

Lord Reed in Morris-Garner said that although he was inclined to agree with Lord Carnwath’s observations at [159], he preferred not to express a concluded view [56]. He simply stated that since damages are awarded in the exercise of an equitable jurisdiction and the Court’s objective is to give an equivalent to what is lost by the refusal of an injunction, the approach adopted has to reflect those characteristics.

22.

The approach of Lord Carnwath is a radical departure from the approach that has been taken hitherto in line with the comments of Neuberger LJ in Lunn Poly, under which when determining what would be the result of the hypothetical negotiation no account is taken of events which have occurred after the date on which the negotiation is assumed to take place. Lord Carnwath’s approach would require the Court to base the hypothetical negotiation on the actual profits made by the developer in every case where the development is complete by the time of trial, and not simply to take that information into account on an evidential basis as (for example) a useful guide to what the parties might have thought at the time of their hypothetical bargain – which evidence could ultimately be ignored by the Court (as it was in Pell Frischmann). 27


23.

If there is “no reason in principle” to exclude information available to the parties up to the time of the Judge’s decision, a sound reason would have to be found if a party wanted to exclude from the hypothetical negotiation consideration of the actual profits made on the development. If Lord Carnwath’s guidance is followed in future cases it seems much less likely that the proportion of the gain awarded as damages will ever exceed the actual gain eventually made – so also the situation in Pell Frischmann, where the parties thought that the defendant would make greater profits than it in fact did, but damages were still awarded on the basis of the higher figure, is not likely to be repeated.

24.

This approach would seem to have wide-ranging implications and to move the hypothetical negotiation from the realms of hypothesis to reality. For example, the Court has in previous cases considered how the developer would approach the hypothetical negotiation taking into account the developer’s risks, such as the risk as to whether the development will go ahead as planned and the risk of whether he will make the profits he hopes to make. It has been said to be legitimate to reflect the balance of risk in the proportion of profits the developer is hypothetically willing to pay and therefore the proportion of the profits the Court will award in lieu of an injunction. In Tamares (Vincent Square) Ltd v Fairpoint Properties (Vincent Square) Ltd (No 2) [2007] 1 WLR 2167 the Judge held that roughly one third of the profits reflected the reality of the balance of risk ([34]). If however the development has been completed by the time of trial and that is information that is taken to be known to the parties, then the element of risk is removed from the hypothetical negotiation, and that may affect significantly the assessment of the percentage of the profits to be awarded for negotiating damages. Diminution in value – what effect does it have on the hypothetical negotiation?

25.

The owner of the right infringed might claim that he will suffer a diminution in the value of his property as a result of the infringement and may wish to bring this into the hypothetical negotiation as well as the share of the development profits. The Court will have to decide how 28


these two elements would interact with one another and be brought into account in the hypothetical negotiation. Would the developer be willing to compensate the property owner by paying a sum to reflect the reduction in value of the land as well as a proportion of his development gain? Probably not in ordinary circumstances, but it may be worth arguing in a particular case. Are all the development profits to be shared or only part of them? 26.

If part of the development can be carried out without an actionable injury being caused to the adjacent land then common sense dictates that in most cases the hypothetical negotiation should relate to the additional gain that the developer will make from the part which causes the injury. In Amec Developments Ltd v Jury’s Hotel Management (UK) Ltd [2001] 1 EGLR 81 the Court awarded a release fee by reference to the additional hotel rooms that could be constructed by virtue of the developer’s breach of restrictive covenant. In Heaney the Judge awarded an injunction but assessed the quantum had damages in lieu been awarded as onethird of the “profit differential” being the additional profits that would have been generated from the offending sixth and seventh floors of the development.

27.

In cases where the figure used is the total profit, that is because the development could not have proceeded at all without the infringement (such as Wrotham Park) – so there is sometimes scope to argue that the offending part of the development is integral to the development as a whole and total profits should be split (see e.g. Deakins v Hookings [1994] 1 EGLR 190). What percentage of profits is likely to be awarded?

28.

This is the six-million dollar question. Unfortunately there is no firm answer to it and since Lord Carnwath’s intervention in Morris-Garner the basis on which decisions have been reached in previous cases may have to be reassessed.

29


29.

On the face of it any factor which would be relevant to the hypothetical negotiation between reasonable parties ought to be taken into account. What cannot be brought into account is the reluctance of one of the parties to reach an agreement since they are presumed to be reasonable and behave reasonably. Therefore the parties are also to be presumed to agree a reasonable sum, not a ransom figure; and the size of the award of damages cannot be so large that the development would not have taken place if that sum had had to be paid by the developer, who naturally expects to make a commercial gain from the development. Also, the assumed deal has to “feel right” – see Amec Developments and Tamares.

30.

The awards of damages in particular cases range from 5% of the profit to 50%. In Bracewell v Appleby [1975] Ch 408 an award of 40% was made for obstructing a right of way. In Tamares an award of 33% was reduced because the infringement of the right was said to be small. In Enfield LBC v Outdoor Plus Ltd [2013] EWCA Civ 608 the Court awarded 50% of a notional licence fee for the erection of hoardings which constituted a trespass. What if there are no profits?

31.

If the developer is a neighbour who is building an extension to her house which is likely to infringe the adjacent owner’s rights in some way, but will not result in the value of her own house being significantly enhanced or does not result in any other identifiable monetary gain to her – what would the Court do?

32.

Damages could still be awarded under the negotiating damages principle, because it is possible to postulate a hypothetical negotiation. Even though there will be no evidence of an identifiable monetary gain that accrues to the neighbour, she is likely to be willing to pay a sum to obtain the release she needs for her extension to be built lawfully and not to be at risk of an injunction being obtained.

30


What if there are multiple claimants? 33.

There might be, for example, several claimants with an interest in a building whose rights to light will be infringed. There may be several claimants living in individual properties who have the benefit of a restrictive covenant that will be infringed.

34.

The Court must establish what sum would be obtained in the hypothetical negotiation and then divide it between the claimants. If the claimants are all affected equally by the infringement, or all have the same or similar interests or property rights that have been infringed, then the Court is likely to apportion that sum equally between the claimants. In Jaggard v Sawyer the damages were divided equally between nine claimants. In Bracewell v Appleby they were divided between five claimants. In Small v Oliver and Saunders (Developments) Ltd [2006] EWHC 1293 (Ch) the damages were divided equally between 48 claimants who were entitled to enforce a restrictive covenant.

35.

However where the claimants have different interests – for example in rights to light cases where the landlord has a claim, and there are tenants of a building in occupation under tenancies of different lengths – the Court is less likely to apportion the developer’s profit equally between them. It might adopt the approach of considering how the strength of the different claimants’ negotiating positions would play out in the hypothetical negotiation. So for example if one claimant was likely to suffer a more serious loss of light as a result of a development than his neighbour who also has a claim, that claimant would argue that he would expect to negotiate a higher sum with the developer for the release of his rights. Expert evidence

36.

The Court will receive expert evidence of what might be likely to be negotiated at the hypothetical negotiation. If Lord Carnwath’s approach is followed, then where the development has been completed by the time of trial evidence of the actual profits made will 31


be of primary relevance and expert evidence of what the parties might have thought the profits would be at the date of the hypothetical negotiation would not seem to be required. 37.

In Tamares the Judge said that he did not need to resolve the conflicting expert evidence before him in that case. Instead he used both expert reports as informing the background to the negotiation: “As part of the hypothetical negotiation, I am content to accept the position that each side would have produced arguments based on its own expert’s opinion and that those two opinions would have differed to the extent that they do in the present case.”

38.

He concluded that the parties would “split the difference in the valuations which were produced on the basis of these opinions”. So the Court may well conclude that it does not have to resolve differences in expert views at the trial – the important consideration is what would the parties have done in the hypothetical negotiation faced with those differing expert views.

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“I Want To Take You Higher”: Rooftop developments Julian Greenhill QC Introduction 1. Rooftop development is all the rage. One estimate in the media of the amount of development potential that could be unlocked through rooftop development in London alone is of £54 billion worth of developable rooftop space with room for an extra 180,000 new homes (Daily Telegraph, 20 Feb 2017). 2. The government has given support to this enthusiasm in its recent Housing White Paper which seeks to address the scope for higher-density housing in urban locations particularly “where buildings can be extended upwards by using the ‘airspace’ above them”. 3. There are a number of specialist developers in the market focussing their business-model on rooftop development, often for the luxury market, companies like First Penthouse, Apex Airspace and Click Above as well as architects such as HTA putting an emphasis in their practice on this type of development. 4. This paper summarises the property law issues 1 that need to be considered in creating meaningful strategy for a rooftop development. The discussion that follows is divided into three sections: (i) title to airspace; (ii) contractual restrictions on rooftop development and (iii) restrictions on rooftop development arising from tenants’ statutory rights.

Planning and construction law issues, which will also fall to be considered, are outside the scope of this paper. 1

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Title to airspace 5. The first question for anyone wishing to carry out a rooftop development is whether they have title to the airspace they wish to develop. 6. A freehold owner of property generally owns the airspace above his land. There is an ancient maxim that the owner of the soil is presumed to own everything “up to the sky and down to the centre of the earth�. The development of powered flight has made it impossible to apply the maxim literally: Bocardo v Star Energy [2011] 1 AC 380 at [20]. 7. So the true position is that the freehold owner of land is presumed to own the airspace above his land but restricted to such height as is necessary for the ordinary use and enjoyment of the land and structures upon it, and above that height he has no greater rights than any other member of the public: Lord Bernstein v Skyviews [1978] QB 479. Within that restricted airspace that belongs to him a freeholder owner is entitled to maintain an action in trespass against a third party who enters that airspace: Kelsen v Imperial Tobacco [1957] 2 QB 334. 8. Contrast the position in relation to ownership of airspace with the position in relation to ownership of sub-strata below the surface, where the maxim continues to apply literally: Bocardo (above) at [26]-[28], where the Supreme Court rejected the submission that a similar limitation to that imposed on the ownership of airspace should apply to sub-surface ownership. 9. The question of who has title to the airspace above a property which has been demised to a tenant depends upon the scope of the demise. That of course turns upon the interpretation of the lease in question understood in its proper factual context. 10. A starting point is to ask whether the demise in question is one of a number of horizontal strata in a given building or structure. Where it is not, and the lease demises a whole building, the Court will generally apply the maxim and hold that the demise includes airspace above the roof of the 34


premises in question. In H Waites v Hambledon Court Ltd [2014] 1 EGLR 119 the lease of a flat together with a garage was held to include the airspace above the garage so that a developer to whom an airspace lease had been granted could not develop the airspace above the garage. Morgan J said at [50]: ‘… where one is dealing with a demise of a building, where the wording of the demise is expressed by reference to a vertical division, and there is no wording expressing any horizontal division, it is natural to react to that wording by holding that there is no horizontal cut off which excludes the airspace above the building or, for that matter, the sub-soil below the building.’ 11. In the recent case of Ralph Kline v Metropolitan and County Holdings [2018] EWHC 64 (Ch) the grant to a developer of an “airspace lease” was held to be in reversion to an earlier sub-lease. The earlier sub-lease described the demised premises thereunder by reference to a description of the buildings and premises “together with the gardens and grounds appurtenant thereto”. Absent any express words excluding the airspace that natural reading was held to be that the earlier sub-lease included the airspace above two blocks of flats demised to the developer. 12. Different considerations apply where the lease is of only one part of a building separate horizontally from other parts, as in the common case of a residential flat. As a starting point in that type of case is to identify whether the demise of the uppermost flat or stratum includes the roof of the building in question. A lease which expressly demised the roofspace and roof of a building was held to carry with it the right to airspace above the roof sufficient to entitle the tenant to develop the roofspace and extend beyond the roof line to the extent of installing dormer windows: Davies v Yadegar (1990) 22 HLR 232. Conversely where the roof was expressly retained by the landlord he retained title to the airspace above and was entitled to carry out a rooftop development: Hannon v 169 Queens Gate Limited [2000] 1 EGLR 40.

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13. This is some disagreement on the authorities as to whether there is a presumption in a case of this sort that the lease of the uppermost stratum carries with it airspace: see H Waites v Hambledon Court Ltd at [49]. In Ravensgate Estates v Horizon Housing [2007] EWCA Civ 1368 it was held to be “obvious� that the airspace above a balcony and flat roof were within the scope of the demise of six flats on the upper storeys of a building with commercial premises below. In truth application of a presumption is likely to be something of a last resort and each case will turn on the interpretation of the lease. 14. Either way, any such presumption must yield to the proper interpretation of the lease. Where the demise of the roof is not dealt with expressly, difficult issues of interpretation can arise on deciding whether or not the demise of a set of premises includes a roof: Delgable v Perinpanathan [2006] 2 P&CR 15. A landlord or developer can find his ability to carry out a rooftop development impeded by finding that a tenant enjoys title to the airspace in question. In Dorrington Belgravia v McGlashan [2010] L&TR 3 tenants of a maisonette on the upper storeys of a building in Belgravia that enjoyed natural light through skylights inserted in the flat roof were held on the facts to have title to the roof within their demise and to be entitled to enjoyment of such of the air space above the roof as was reasonably necessary for the use and enjoyment of the maisonette and the fixtures, fittings and other features of it. This prevented the landlord from adding a new storey to the rooftop of the building. Different considerations may apply in relation to a purpose-built block of flats where no tenant has the roof clearly within his demise. 15. How much airspace is within a given demise? There is no presumption that a lease includes the full height of the airspace available to the lessor. Again the question is one of construction of the lease in question and the question is what a third party, equipped with the relevant background knowledge would conclude. In Rosebery v Rocklee [2011] L&TR 21 the acquisition by the tenant of a flat on the 6th floor of a roof-space adjacent to his flat directly above a flat on the 5th floor did not carry with it any right to build upwards above the 6th floor into the airspace at 7th floor level, which was adjacent to a further flat.

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16. As an aside, different considerations apply to leasehold title to the sub-soil so as to permit building downwards. See Lejonvarn v Cromwell Mansions Management [2012] L&TR 31 and the recent case of Gorst v Knight [2018] EWHC 613 (Ch) where it was held that the long lease of a flat comprising the ground floor and cellar of a conversion property did not carry with it the right to dig into the sub-soil to extend the depth of the basement. The need to preserve the integrity of the foundations was held to militate against such an interpretation of the lease in that case. Contractual restrictions on rooftop development 17. Any number of contractual restrictions may have an impact on the right to develop a given airspace. It is not uncommon for a freehold vendor to take the benefit of a restrictive covenant to limit the height or profile of any building on neighbouring land that he is selling off in order to preserve the amenity of his own property, although this is less common in an urban context. Often such covenants limit development to the height of existing buildings on the land and could thereby have the effect of restricting rooftop development. 18. In the common situation in which a landlord wishes to undertake rooftop development of a building demised to one or more tenants, prima facie a landlord is entitled to use its retained property as it pleases, even where that will be detrimental to the interest of his lessee: see Port v Griffith [1938] 1 All ER 295. However, it will be necessary to consider carefully the terms of the lease or leases in question to understand whether development of the airspace will or might breach the lease in some way. 19. It is rare to find a provision in a lease which directly purports to restrict the right of the landlord to build upwards by constructing a rooftop development, but landlords and tenants adopt various strategies aimed at trying to achieve their desired result by other means, with varying degrees of success.

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20. Leases very often contain a reservation in favour of the landlord entitling him to carry out work upon, alter or build upon variously described buildings or premises in the vicinity. Where such a reservation expressly refers to the building of which the tenant’s premises form part the effect will generally be to expressly reserve to the landlord the right to build among other things a rooftop development, provided the property is otherwise suitable. 21. Where the reservation does not expressly refer to the building in which the demised premises are located it will be a matter of interpretation as to whether it has such an effect. In Dorrington Belgravia v McGlashan [2010] L&TR 3 the reservation of a right to the landlord “to deal as they may think fit with any of the lands and hereditaments adjacent or near to the demised premises and to erect or suffer to be erected upon such adjacent or neighbouring premises any buildings whatsoever” in the lease of a maisonette on the top floor flat was held not to entitle the landlord to build a rooftop development one consequence of which would be to block a series of sky lights inserted in the existing flat roof that were an important light source for the maisonette. The first part of the clause reserved a right to “deal” with the premises, which meant “sell, let or create rights”. The second part of the clause referring to “adjacent or neighbouring premises” was not apt to refer to the roof an airspace above the building in which the demised premises were situated. 22. In Francia v Aristou [2017] L&TR 5 the lease of the top floor flat in a building forming part of a wider development contained a reservation in favour of the landlord in the following terms: ‘The right for the Landlord at any time or times hereafter without obtaining the consent of or paying compensation to the Tenant: 4.1 To build or rebuild or alter permit or suffer to be built or rebuilt or altered any buildings or erections upon the Development (other than the Building) according to such plans and to such height extent or otherwise and in such manner as the Landlord shall reasonably think fit notwithstanding that such buildings as so built rebuilt or altered may obstruct any lights windows or other openings in or on the Demised Premises [the Flat].’

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23. The tenant argued that the exception from this reservation effected by the wording in parentheses “(other than the Building)”, meant that the landlord had no right to build a rooftop development on the building itself. The Judge observed that the commercial purpose of such a reservation is to operate as a consent under section 3 of the Prescription Act 1832 so as to prevent the acquisition by the tenant of rights to light over adjoining buildings. Thus the purpose of the clause was permissive not prohibitory. The Judge declined to interpret the words in parentheses as being intended by a side-wind to take away rights the landlord would otherwise enjoy to develop his property. Properly construed, the words in parentheses simply made clear that the reservation had no application to the Building itself, leaving the landlord’s right to extend upwards to be regulated by the general law untrammelled by any express terms in the lease. 24. Absent such a reservation in favour of the landlord, the issue may arise as to whether a rooftop development gives rise to a breach of the covenant for quiet enjoyment. The covenant for quiet enjoyment is broken whenever the landlord or someone claiming under him substantially interferes with the tenant’s title to or possession of the premises or with his ordinary and lawful enjoyment of them: Southwark LBC v Mills [2001] 1 AC 1. The building work and consequent disturbance generated by the construction of a rooftop development could, in the absence of an express reservation in favour of the landlord, provide a fertile area for dispute. 25. Equally a rooftop development will often result in some permanent changes to the outlook or quantum of sunlight reaching existing flats in a building. In Francia Properties v Aristou (above) it was held that the loss of sunlight to a balcony resulting from the construction of an further flat above the demised premises was not sufficient on the facts to amount to a breach of the covenant of quiet enjoyment or a derogation from grant. Again, each case will turn on its facts. 26. Another common area of dispute is whether a rooftop development will give rise to a breach of a repairing covenant. A covenant to keep a property in repair is sometimes said to carry with it an obligation not to destroy the property. Rooftop development will almost always require the destruction of at least some if not all of the elements making up the existing roof of the building 39


in question. Thus in Devonshire Reid v Trenaman [1997] 1 EGLR 45 it was held that the construction of a new flat in the roof-space of a building already containing four flats would have constituted a breach of the covenant in the leases to maintain, repair, redecorate and renew the roof. 27. However the question of whether an alteration by the landlord resulting in destruction of part of the subject-matter of a repair covenant is a breach of the repair covenant is a matter of construction of each lease. The modern trend has been away from the simplistic equation of destruction of certain elements with a breach of contract. In Hannon v 169 Queens Gate Limited [2000] 1 EGLR 40 a landlord obtained planning permission to construct two further flats on the rooftop of a building comprising 25 existing flats. The development would necessarily require some removal and substitution of structural roof timbers and the insertion of windows or roof lights into the roof surface itself. The Court refused to construe the landlord’s covenant to repair the roof as preventing the landlord from carrying out such a development. The Judge held that: ‘In construing the covenant, regard must be had, in particular, to what the parties to the lease are to be taken as having contemplated would be permissible. It will be relevant to consider the existence and terms of any covenant against alterations. The defendant points out that in the instant lease there is a covenant on the lessee to repair and a further covenant on him not to make alterations. There is not, however, such a covenant restricting the lessor from making alterations. On the contrary, since, in this lease, the lessor has the entitlement to execute “necessary repairs or alterations to or upon any part of the Building” (see clause 2(j)) and to execute “building operations additions alterations decorations repairs or improvements to the building” (clause 9 supra), it seems to me that the claimant is not able to advance his argument on this aspect past “first base”. The claimant says that I should not read clause 9 as giving the defendant the power to build, make additions or alterations, but merely as limiting the lessee's remedies should it do so. I reject this submission. At the very least, the powers are implicit.’

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28. These cases illustrate a further issue that may arise: namely whether a rooftop development adding one or more flats to a building may breach a letting scheme, and be impermissible for that reason. In Devonshire Reid v Trenaman the Judge held that there was a letting scheme of mutual covenants across the four flats implicit in which was an obligation that the landlord would not add a fifth flat to the scheme: ‘In my judgment, the intention of the parties to the leases is obvious from the form in which those leases have been drawn. Two things are absolutely apparent; the first is that the costs of maintenance in so far as the obligations fall upon the lessor should be shared in their entirety among the four lessees of the flats within the building. That carries with it the necessary implication that the parties did not contemplate any beneficial occupation of the remainder of the premises either by the lessor or by anybody holding under them. The second thing that, in my judgment, is clearly apparent is that great care has been taken to ensure a mutuality of covenants among the lessees. It is necessary in order that there shall be mutuality among them all that they should be restricted to the number recited at the beginning of each lease, namely four. Mr Daiches has suggested that the intention was for a letting scheme for four flats and that therefore it is not necessary to assume an intention not to have a fifth flat, but I think that the correct construction of the intention of the parties was that it was the intention to create a letting scheme between all the lessees occupying the building and that therefore it is necessary to restrict them to the number recited upon the determination of the scope of the letting scheme, namely the four referred to in each lease. For that reason I am satisfied that it is a necessary implied term in order to carry out the intention of the parties objectively ascertained in regard to these leases, to imply a covenant that the lessors will not create within the building more than the four leases referred to in each of the four leases. That covenant would likewise be breached if the works contemplated by the appellants were carried out point is treated ‌’

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29. In Hannon v 169 Queens Gate Limited, by contrast, the Judge distinguished Devonshire Reid v Trenaman on the basis that the lease did not expressly refer to a fixed number of flats and he was not prepared to interpret the letting scheme as being limited in its vertical extent. Applying Reigate v Union Manufacturing Co [1918] 1 KB 592 he held that in the absence of express definition, any additional flats constructed in or above the existing roof level would be incorporated into the letting scheme as the area was within its spatial boundaries and thus the scheme would apply to the new flats to be built by the landlord. Restrictions arising from tenants’ statutory rights 30. Constraints upon a landlord’s ability to develop airspace arise from various statutory rights conferred on residential tenants. Careful account of these needs to be taken in developing a strategy for a rooftop build. I will consider these various rights in the order in which they were enacted because they interrelate. The ‘right of first refusal’ under the Landlord and Tenant Act 1987 31. Pt I of the Landlord and Tenant Act 1987 gives tenants in a block of flats the right of first refusal when their landlord wishes to make a relevant disposal of all or part of his interest. Section 1 of the 1987 Act enacts a statutory right of pre-emption in favour of the qualifying tenants of premises within the scope of the Act, essentially the whole or part of a building containing two or more flats held by qualifying tenants the number of flats held by whom exceeds 50% of the total. 32. Section 4 sets out what a relevant disposal is: ‘4(1) In this Part references to a relevant disposal affecting any premises to which this Part applies are references to the disposal by the landlord of any estate or interest (whether legal or equitable) in any such premises, including the disposal of any such estate or interest in any common parts of any such premises but excluding—

42


(a) the grant of any tenancy under which the demised premises consist of a single flat (whether with or without any appurtenant premises); and (b) any of the disposals falling within subsection (2) … (4) In this section ‘appurtenant premises’, in relation to any flat, means any yard, garden, outhouse or appurtenance (not being a common part of the building containing the flat) which belongs to, or is usually enjoyed with, the flat.” 33. “Common parts” is defined in section 60(1) to mean “in relation to any building or part of building, includes the structure and exterior of that building or part and any common facilities within it.” 34. In Dartmouth Court Blackheath Ltd v Berisworth Ltd [2008] L&TR 12 the landlord of a block of 72 flats in Southwark granted a lease to a developer of the airspace above the main building containing the flats, together with various other elements of the wider site. The roof consisted of a mansard roof with several chimneys serving the flats below protruding several feet above the mansard roof. 35. Warren J held that the grant of the airspace lease to the developer was a relevant disposal within the meaning of section 4 of the 1987 Act with the result that the tenants had a right of first refusal of the lease of the airspace. 36. He held this on two alternative bases, first that the airspace was “appurtenant” to the “building” so as to form part of it for the purposes of section 1(2)(a) of the 1987 Act (applying the reasoning in Denetower Ltd v Toop [1991] 1 WLR 945) and, second, if that was wrong then the airspace formed part of the “common parts” within the meaning of section 4(1). He said: ‘[70] … The fact is that the landlord is under an obligation to keep the structure of the main building (including the roofs and chimney stacks) in repair. The landlord certainly requires access to carry out his obligations in respect of those structures, as well as in relation to the 43


pipes and tanks which are to found on the roof and within the mansard roof. The airspace is not, I accept, appurtenant to the building in the same sense that the gardens were appurtenant to the buildings in Denetower, the tenants having no rights over the airspace. But, or so it seems to me, the airspace, at least the height of the chimneys (but see [73] below), is an essential part of the space over which any owner of the main building with repairing obligations would need to have adequate rights of access. At a time when the airspace is actually owned by the owner of the building, I consider that it is correct to regard the airspace up to that height as appurtenant to the building if not actually part of it. To echo the words of the Vice-Chancellor in Denetower, it would be to attribute to Parliament an entirely capricious intention if I were to hold that the tenants' rights to purchase did not extend to the airspace above the roof the enjoyment of which is necessary to maintain the structure, including the roof and chimneys, in the state of repair in which the landlord is obliged to keep it. In my judgment, it is perfectly legitimate meaning of the world “building” that it includes the airspace necessary to enable maintenance to be carried out. [71] If that is wrong, I would conclude that the airspace above the roof to that height is a “common part” being part of the exterior of the building. Mr Lidington submits that “exterior” cannot be given such a wide meaning and is referring simply to non-structural external surfacing such as cladding or render and paint. But I would not restrict the meaning of the word in that way in the context of Pt I . It makes perfectly good sense, in my judgment, to include the airspace above the roof as part of the exterior when the enjoyment of that space is from time to time necessary for the protection of the building, i.e. by repairing it. I would accordingly hold that the airspace is part of the common parts and, as such, a disposal of it will be a relevant disposal within s.1.’ 37. The decision in Dartmouth Court Blackheath Ltd v Berisworth places a constraint upon the ability of a landlord to develop airspace above a block of flats, because he will be unable to sell the airspace or a completed rooftop development without running the risk of triggering the tenants’ right of first refusal. Of course, it does not entitle the tenants to stop the development going 44


ahead, merely to step in and purchase ahead of the disponee. If the airspace or new flat is being sold at open market value the tenants would have to be willing to pay that value to acquire it themselves. 38. There is, however, a recognised way around the right of first refusal. Section 4(1)(a) specifically excludes from the definition of “relevant disposal” “the grant of any tenancy under which the demised premises consist of a single flat (whether with or without any appurtenant premises)”. 39. It would appear to follow from this that the owner of a set of premises to which the right of first refusal applies could himself construct a rooftop development comprising one or more flats and dispose of them individually without triggering the tenants’ rights under the 1987 Act. 40. For obvious reasons, usually a landlord wishes to sell the airspace to a developer rather than to develop the flats himself. The 1987 Act makes this difficult. However, utilising a building licence arrangement it ought to be possible to enter an agreement with a developer to build the rooftop development pursuant to a licence to occupy and then for the developer to dispose of the flats as agent for the landlord on terms that the landlord will grant single leases of them at the developer’s behest, all without triggering the Act. It should be emphasised that this approach has never been tested in the courts. Collective enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993 41. Chapter I of Part I of the 1993 Act contains a detailed and comprehensive code that confers on qualifying tenants of flats contained in eligible premises the right to have the freehold of those premises acquired on their behalf by one or more nominee purchasers. This is referred to as “the right to collective enfranchisement”. Pursuant to section 3 , the regime applies to premises that consist of a self-contained building or part of a building that contain two or more flats held by qualifying tenants, where the total number of flats held by such tenants is at least two thirds of the total number of flats in the premises. 45


42. Section 2 specifies the circumstances where the participating tenants, by their nominee purchaser, are (a) obliged to acquire a leasehold, and (b) entitled to acquire a leasehold: ‘2(1) Where the right to collective enfranchisement is exercised in relation to any premises to which this Chapter applies (‘the relevant premises’), then, subject to and in accordance with this Chapter— (a) there shall be acquired on behalf of the qualifying tenants by whom the right is exercised every interest to which this paragraph applies by virtue of subsection (2); and (b) those tenants shall be entitled to have acquired on their behalf any interest to which this paragraph applies by virtue of subsection (3); and any interest so acquired on behalf of those tenants shall be acquired in the manner mentioned in paragraphs (a) and (b) of section 1(1). (2) Paragraph (a) of subsection (1) above applies to the interest of the tenant under any lease which is superior to the lease held by a qualifying tenant of a flat contained in the relevant premises. (3) Paragraph (b) of subsection (1) above applies to the interest of the tenant under any lease (not falling within subsection (2) above) under which the demised premises consist of or include— (a) any common parts of the relevant premises, or (b) any property falling within section 1(2)(a) which is to be acquired by virtue of that provision, where the acquisition of that interest is reasonably necessary for the proper management or maintenance of those common parts, or (as the case may be) that property, on behalf of the tenants by whom the right to collective enfranchisement is exercised.” 43. Thus, the participating tenants are entitled to have acquired on their behalf the interest of a tenant under a lease that consists of or includes any common parts of the premises, where it is reasonably necessary to acquire that interest for the proper management or maintenance of those common parts. “Common parts” is defined in section 101(1) as follows: “‘common parts', in relation to any building or part of a building, includes the structure and exterior of that building or part and any common facilities within it;” 46


44. The entitlement of the tenants to acquire the freehold of the relevant premises together with any common parts as defined is capable of extending to the airspace above the building in question. Applying the same reasoning of Warren J in Dartmouth Court Blackheath Ltd v Berisworth under the 1987 Act, airspace was held to be part of the building by the Upper Tribunal in Merie Bin Limited v Barrie House [2015] L&TR 21. Tenants only have the right to acquire the airspace if it is reasonably necessary for the management or maintenance of the building. The LVT has shown a willingness to find in favour of tenants on this point. In the case of Heritage Land Plc v Buttermere Court Freehold (ref LON/00BK/OCE/2006/0312) the LVT held that the airspace above an eleven storey block of flats formed part of the common parts of the premises and that acquisition of the airspace was reasonably necessary for the management of the common parts, so that the tenants were entitled to acquire the interest of a company which had been granted a lease of the airspace prior to their notice being given. 45. Section 19 sets out the anti-avoidance provisions of the 1993 Act. By section 19(1)(a) of the 1993 Act, once the initial notice had been registered, the freeholder was precluded from granting out of its freehold interest “any lease under which, if it had been granted before the relevant date, the interest of the tenant would to any extent have been liable on that date to acquisition by virtue of section 2(1)(a) or (b)”. Any transaction is void by virtue of that section “to the extent that it purports to effect any such disposal or any such grant of a lease as is mentioned in” that subsection. 46. In Kintyre Ltd v Romeomarch Property Management Ltd [2006] 1 E.G.L.R. 67 the tenants had given notice of a claim to collectively enfranchise. Three months later the landlord granted a 999-year lease of the surface of the flat roof of the block and the structure beneath the surface comprising everything above the ceiling joists of the flat or flats on the floor immediately beneath the roof and the air space above the flat roof “including all additions alterations improvements thereto and any constructions or development now or at any time in the future erected thereon (subject to clause 5.5 hereof)”. The lease was for 999 years. The permitted user was the locating of one or 47


more telecommunications aerials or mobile telephone masts and/or following development as one or more residential flats. The Adjudicator to HM Land Registry held that the lease was void in contravention of s19(1). He said at [24]: ‘I have come to the clear conclusion that Romeomarch succeeds on this issue for the following reasons, which, taken both together and separately, would make the acquisition of the lease reasonably necessary for the proper management or maintenance of the common parts of the block: (1) I agree with the views of the Leasehold Valuation Tribunal in LON/ENF/1177/04 that the maintenance of the roof itself or any structure placed upon the roof such as an aerial depends upon the proper management of the airspace and that where, as here, the management of the roof space affects the maintenance of the roof as a whole, such management is reasonably necessary for the proper management of the roof. (2) In particular, I find it impossible to see how there can be proper management of the roof space by the management company when Kintyre is building flats on it or placing mobile telephone masts on it. (3) I accept the uncontradicted expert evidence of Mr. Firrell that although the roof is described as a flat roof, it is in fact pitched and tiled; that development of the roof to form one or more residential units cannot be undertaken unless the existing roof structure is demolished and reconstructed; that this will cause substantial disruption; that the installation of mobile telephone masts cannot be undertaken without reconstruction of the existing roof; and that access to the existing roof space including the electric lift motor room is necessary at all times and without hindrance for the proper management of the block. (4) I am unable to see how the management company can effectively manage the roof of the block if Kintyre can at any time demolish it, reconstruct it and even take over responsibility for it by constructing a dwelling over all or part of it, imposing new

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liabilities on the management company in respect of a new roof over which it had no control.’ 47. Conversely, under section 36 of the 1993 Act as supplemented by Schedule 9, the landlord enjoys an entitlement to request a leaseback of certain property. Section 36(1) provides that upon the acquisition of a freehold interest in the specified premises the nominee purchaser “shall grant to the person from whom the interest is acquired such leases of flats or other units contained in those premises as are required to be so granted by virtue of Pt II or III of Sch.9 ”. Section 38 defines a “unit” as “(a) a flat” or “(b) any other separate set of premises which is constructed or adapted for use for the purposes of a dwelling”, or “(c) a separate set of premises let, or intended for letting, on a business lease”. Section 101 defines a flat as “a separate set of premises (whether or not on the same floor)”, which “(a) … forms part of a building”, and “(b) … is constructed or adapted for use for the purposes of a dwelling”, and “(c) either the whole or a material part of which lies above or below some other part of the building”. 48. In Merie Bin Limited v Barrie House [2015] L&TR 21 the landlord had granted leases to O2 and Orange of certain part of the premises including the right to install mobile telephone antennae on the roof. The Upper Tribunal held that these leases were “units” within the meaning of part (c) of the definition in section 38 of the 1993 Act, so that the landlord was able successfully to apply for a leaseback of those premises including the airspace above the roof into which the antennae extended. 49. However, by reason of the limitation of the right to a leaseback to “units” has defined has an important consequence. It was also held in Merie Bin Limited v Barrie House that a “unit” must be in existence at the relevant date in order for a landlord to claim a leaseback of it. Because a “unit” is limited to a “flat” or “any other separate set of premises which is constructed or adapted for use for the purposes of a dwelling” or “a separate set of premises let, or intended for letting, on a business lease” it would appear to follow that a landlord cannot claim a leaseback of

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undeveloped airspace above a building the freehold of which is to be acquired by collective enfranchisement. 50. These provisions create scope for a considerable amount of skirmishing between tenants and landlords where rooftop development is in prospect. Tenants can seek to prevent such development by launching a collective enfranchisement claim to include the relevant airspace. If such development is a realistic prospect then the value of the development potential of the airspace will form part of the price the tenants can be required to pay for enfranchisement, so the tenants will either need to be willing to acquire the rooftop and develop it themselves or ultimately stand aside and permit the landlord or airspace lessee to proceed with the development. In Hemphurst v Durrels House Limited [2011] L&TR 16 it was held that a nominee purchaser is not bound to acquire the whole of a leasehold interest in relevant premises, so that where a landlord had granted a 999 year lease of the roof and airspace above a block of flats, it was open to the tenants through the nominee purchaser to acquire only those parts of the leasehold interest in the roof of the premises which were not required for the implementation of the planning consent but which would be required for the proper maintenance of the rest of the block. The ‘right to manage’ under the Commonhold and Leasehold Reform Act 2002 51. Chapter 1 of Pt 2 of the 2002 Act makes provision for the acquisition of the right to manage a selfcontained building or part of a building without having to prove shortcomings on the part of the landlord and without payment of compensation. The “right to manage” is granted to a company (referred to as a RTM company) which may “acquire and exercise those rights”: s.72. An RTM company must be a private company limited by guarantee and where its articles of association state that its object, or one of its objects, is the “acquisition and exercise of the right to manage the premises”: s.73(2) . Persons who are entitled to be members are qualifying tenants of flats contained in the premises and, from the date the RTM acquires the right to manage, landlords under leases of the whole or any party of the premises: s.74(l). 50


52. An RTM company acquires ‘management functions’ as defined under s.96 and 97 of the 2002 Act including in respect of the roof, such as keeping it in good repair. Section 97(2) provides: ‘(2) A person who is— (a) landlord under a lease of the whole or any part of the premises, (b) party to such a lease otherwise than as landlord or tenant, or (c) a manager appointed under Part 2 of the 1987 Act to act in relation to the premises, or any premises containing or contained in the premises, is not entitled to do anything which the RTM company is required or empowered to do under the lease by virtue of section 96 , except in accordance with an agreement made by him and the RTM company.’ 53. In Francia Properties v Aristou [2017] L&TR 5 the tenants had exercised their right to manage under the Commonhold and Leasehold Reform Act 2002 and the RTM company argued that the construction by the landlord of a new flat in the airspace above the roof of the building would unlawfully interfere with the exercise by the RTM company of its management functions. 54. The landlord’s proposed rooftop development required removal of the existing roof and the fitting of a new roof at a higher level. It was clear that this would interfere with the RTM company’s management functions during the build and would leave in place a new roof over which the RTM company had functions which was to be constructed to a method and design of the landlord’s choosing. The tenant argued that section 97(2) imposed an absolute prohibition on any landlord from developing any part of a building in respect of which an RTM company exercised its function. 55. The Judge declined to interpret the 2002 Act as having such an effect, particularly given that, unlike collective enfranchisement under the 1993 Act, the 2002 Act provides for no compensation to be paid to a landlord when the right to manage is exercised. This pointed away form an

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intention on the part of Parliament that the exercise of the right to manage should place a blanket prohibition on landlords from developing their property once an RTM company was in place. 56. Instead the Judge concluded as follows concerning the interpretation of the 2002 Act: ‘[76] Returning to the words of s.97(2), whilst the prohibition is wide, it is not part of the function of the RTM in this case (or generally) to construct new dwellings. In those circumstances, what the claimant is proposing to do is not per se something the Company is “required or empowered to do under the lease�. What the Company is required or empowered to do is to manage the roof. True it is that this management will be affected during and by the building work, but that in my judgment is not expressly prohibited by the Act. Further, the Company can continue to exercise management function in relation to the roof by, for example, applying to court for an injunction in the event that the development results in an ingress of the elements through the roof. [77] My provisional view is that the tension is to be reconciled by permitting a landlord to carry out development works providing it has taken all reasonable steps to minimise the disturbance to the management functions of the RTM both during and after the works. [78] The fact that the development works may alter the size and scope of a building and therefore the responsibilities of an RTM does not seem to me to be an absolute bar, although it will clearly be relevant to the reasonableness of the works. As noted above, s.96(6)(a) excludes commercial premises from the responsibilities of the RTM. What if the commercial tenant defaults, the landlord evicts and then converts the (possibly large) premises into a residential unit? This would alter the responsibilities of the RTM in potentially a significant manner, but that appears to be contemplated by the legislation. [79] There may come a point when the development scheme is so significant in its effects on the RTM that it cannot be said that the landlord has taken all reasonable steps. For example, the replacement of a pitched roof with a flat roof that is likely to cost enormous sums to maintain. Likewise, the example discussed above in relation to the provision of bins. But that would have to be resolved on a case-by-case basis. 52


… [92] I therefore conclude that, on a proper interpretation of the 2002 Act, the appointment of the Company as the RTM company for the Building does not, of itself, prevent the claimant from building the New Flat on the roof. But the claimant’s right is not untrammelled and it is required to take all reasonable steps to minimise the disturbance to the management functions of the RTM both during and after the works.’ 57. Francia Properties v Aristou was a decision of the County Court and the first time that this issue had come before the Courts. The RTM company brought a leapfrog appeal to the Court of Appeal, who heard the appeal but the case was compromised before judgment was given. So it will take another case for us to see whether the Court of Appeal agrees with the Judge’s interpretation of the 2002 Act.

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“Don’t Underestimate The Things That I Will Do”: Statutory undertakers and impediments and opportunities for developers James McCreath Introduction 1. Urban development in the 21st Century relies on a remarkably complex network of utilities infrastructure to service it. The unglamorous parts of development – matters such as sewage, water supply, electricity supply, and gas supply – are fundamental to its success. They in turn can impact not just the development site, but the neighbouring land over which the necessary pipes or lines have to run. 2. Despite the centrality of infrastructure to development, the law relating to the undertakers responsible for it is underdeveloped. There are detailed statutory regimes in place, but those are in many respects the consolidation of provisions dating back to Victorian times. Selfevidently, things have changed since then, in the nature of development, the technology underlying the infrastructure, and in the economic structure of the industry that provides them – not least the major privatisations in the 1980s. Moreover, there has been relatively little litigation over the provisions, the issues which arise under them having largely been either ignored or negotiated away prior to litigation. 3. An attempt to describe this regime in all its detail is far beyond the scope of this paper. What I propose to do instead is to consider the regime so far as it relates to sewage and water supply, and not for example the regimes under the Gas Act 1986 or the Electricity Act 1989. Sewage and water supply are particularly interesting in this context, as the relevant infrastructure is not just necessary for development, but can in certain circumstances restrict or prevent development in the first place. 55


Sewers 4. Sewers tend to be the most serious utilities problem to overcome in development. There are two reasons for that. 5. First, the presence of a sewer in and of itself can prevent development from taking place. In general terms, it is not possible without the consent of the owner of the sewer to build over or within 3 metres of a sewer; see paragraph H4 of Schedule 1 to the Building Regulations 2010, and Section H4 of Approved Document H to the Building Regulations. In practice, as explained further below, the price for that will ordinarily be a build-over agreement which may contain relatively onerous terms. 6. Second, any development needs a sewer, and they are relatively large and cumbersome assets. What to do if there is a sewer on land you want to develop? 7. This addresses the first problem. 8. Sewerage undertakers are naturally concerned about the construction of infrastructure over their assets. The extra weight of the new building on the face of things will increase the likelihood of a sewer collapse, which in turn would damage the new building. When contacted for their consent to building over, they can generally be expected to undertake a survey to determine whether the sewer can cope with the proposed development. 9. If it can, they will then insist on a build-over agreement, which will regulate the way in which the building is constructed around the sewer, and provide for the undertaker’s future access to clean and repair the sewer. The provisions of those agreements can be onerous; they can

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in certain circumstances require the removal of the building in the event that particularly extensive works are necessary to the sewer. 10. So what, if anything, can be done to avoid entering into one? There are no easy solutions. 11. The first option is to invoke the undertaker’s duty under s.185 of the Water Industry Act 1991 (“WIA 1991”) to alter or remove a sewer. For that duty to be involved, it is necessary for: a. a person with an interest in the land in which the sewer is installed, or in adjacent land, to give notice to the undertaker; and b. for the alteration or removal to be necessary to enable the person to carry out a proposed improvement of the land in which they have an interest. Improvement is specifically defined in s.185(9) so as to include any development. 12. The downside to this option is cost. The person requiring the diversion is liable under s.185(5) to pay such charges as the undertaker may impose in accordance with charging rules, which are rules issued by OFWAT under s.144ZA. The actual rules 2 are brief, and it is left to the undertaker to set out its method, but it is provided in para 43 of the rules that charges must be calculated “by reference to the principle that the undertaker is only entitled to recover costs reasonably incurred” as a result of complying with its duty. 13. These costs can be substantial. Sewers are necessarily straightforward to construct, as they have to be laid out so that their contents continue to run over long distances by virtue of gravity. An apparently small diversion can therefore require substantial changes upstream

See https://www.ofwat.gov.uk/wp-content/uploads/2017/08/Charging-rules-for-new-connection-sevricesEnglish-undertakers.pdf 2

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and downstream of the development site, including on the land of others. In addition to the construction costs, there will also be legal costs and survey costs. 14. Further, the burden of this approach is increased by the right of the undertaker under s.185(4) to require security. 15. There are two other possibilities, which might assist in some cases. 16. First, the requirement under paragraph H4 of Schedule 1 to the Building Regulations only applies where the apparatus in question is “shown on any map of sewers.” “Map of sewers” in in turn defined as any “brecords [sic] kept by a sewerage undertaker under s.199 of [WIA 1991]”. 17. Under s.199, the map of sewers should show every public sewer, or every sewer which by virtue of arrangements already entered into by the undertaker is to become a public sewer. In practice, however, they are often not complete; the sheer extent of sewerage infrastructure, together with the range of different bodies that have over time had responsibility for it, means that some (generally minor) parts of infrastructure have never found their way onto maps. Further, there is no obligation for it to show private sewers, although in practice such maps often do. 18. So it is not safe simply to assume that because a sewer is there in the ground, it is also on a map of public sewers. If it is not, on the face of things the requirement in the Building Regulations does not apply. To continue building in such circumstances however would be a risky approach, given the physical risks which the sewer poses to the new development and vice versa, and the legal risk of a claim in nuisance being brought by the undertaker. 19. Second, the position as to ownership of the sewer may not be as clear cut as one might initially expect. It is natural to assume that a sewer is owned by the sewerage undertaker. But it is 58


not always the case. The sewers which vest in sewerage undertakers and which may affect development can be divided into the following categories: a. Sewers which they themselves have constructed (WIA 1991 s.179(1)); b. Sewers which they did not construct, but which they have adopted by making a declaration of vesting under WIA 1991 (s.179(2)); c. Sewers which passed to them on privatisation, being those which vested in the regional water authorities immediately prior to privatisation. This can be a complex question, as it requires an examination of the statutory archaeology and the nature of the sewer and its construction, but in short (i) any sewer constructed by the regional water authority or its predecessors will vest in the undertaker, (ii) any sewer adopted by the regional water authority or its predecessors will likewise vest, and (iii) most sewers constructed prior to 1 October 1937 (the date on which the Public Health Act 1936 came into force) will also vest; 20. The scope of the second of these categories – sewers which undertakers have adopted – was substantially increased by the Water Industry (Schemes for Adoption of Private Sewers) Regulations 2011. Those required undertakers to adopt any private sewer or private lateral drain in their area which connect into a public sewer, save for exempt ones. The categories of exemptions in Regulation 5 is narrow, the main categories being sewers owned by railway undertakers or situated on or under Crown land. 21. There is a prior question however as to whether the pipe in question is in fact a “sewer” or a “lateral drain.” That can be a technical question the answer to which is not necessarily straightforward: a. The definition of “sewer” in WIA 1991 s.219(1) is inclusive, so is not much help in determining what is not a sewer. But it appears to be contrasted with the definition of “drain” as “a drain used for the drainage of one building or of any buildings or yards 59


appurtenant to buildings within the same curtilage.” So a sewer is in effect something which serves more than one property. b. A “lateral drain” is defined in the same subsection as either “that part of a drain which runs from the curtilage of a building (or buildings or yards within the same curtilage) to the sewer with which the drain communicates or is to communicate” or “(if different and the context so requires) the part of a drain identified in a declaration of vesting….” 22. Assuming a pipe is a public sewer, one issue which in my experience can get landowners excited is the question of whether it is there lawfully. In brief summary, absent consent of the landowner, an undertaker may construct a sewer on private land only by exercising its powers under WIA 1991 s.159, which requires notice, ordinarily of three months, to be given to both the owner and to the occupier of the land in question. 23. It is surprising how often in practice there is scope to argue that the notice requirement has not been complied with. That might be because no notice at all has been given, because the change in ownership was not appreciated. Or it might be arguable that the notice was defective; perhaps because it was not given to the correct occupier, or insufficient notice was given, or the details of the scheme given in the notice were deficient or varied from what was subsequently constructed. 24. Landowners tend to jump on such arguments and think that this gives them an easy solution to their sewer problem. Absent a valid s.159 notice, the presence of a sewer is a trespass. How can an act of trespass prevent their intended development? 25. Unfortunately, the power of any such argument is severely curtailed by the decision of the Court of Appeal in Severn Trent Water Limited v Barnes [2004] EWCA Civ 570. That was a case where damages in lieu of an injunction rather than an injunction were sought. The quantum of damages awarded was modest, because the undertaker would have been able to obtain access had they served the requisite notice; in the hypothetical negotiation, any attempt to 60


demand a ransom would have been met with ‘fine, we’ll just serve a notice’. Hence damages were limited to (i) the statutory compensation which would have been payable had a valid notice been served (as explained further below, assessed primarily by reference to diminution in value) and (ii) the extra ‘nuisance’ payment which Mr Barnes may have been able to extract from the undertaker to avoid a contested hearing as to the quantum of compensation. What was not recoverable is what would have given the landowner real leverage in any negotiations with the undertaker; a sum representing the value of the use of the pipe to the undertaker. How do I get a sewer? 26. There are in very broad terms two options as to how sewers may be provided for a new development. 27. The first is that the developer may construct the necessary sewers himself. Ongoing maintenance obligations can be avoided by entering into an agreement with the sewerage undertaker to adopt the sewer once it has been constructed under WIA 1991. s.104: if the undertaker refuses to do so, there is a right of appeal to OFWAT under s.105(1). There is a right to have a sewer or drain communicate with public sewers under s.106. That right is of remarkable breadth; for example, the Supreme Court has held that the fact that the connection will lead to overloading of the sewer into which it is made does not preclude the right: see Welsh Water v Barratt Homes Limited [2009] UKSC 13, [2010] 1 All ER 965. 28. But this approach has its limits. In order for the sewers to reach the public sewer system, it may be necessary to acquire rights over third party land. Surface water sewers might be designed to discharge into private watercourses, requiring rights of discharge to be acquired. Thus third parties can be put in a position to ransom developers. 29. WIA 1991 provides a solution to this problem so far as domestic developments are concerned. In such cases, it is possible to requisition a sewer under WIA 1991. s.98, whereby serving a 61


notice places the undertaker under a duty to provide a sewer. Under s.98(4), a breach of that duty is actionable by the person who required the provision of the sewer, subject to a defence that all reasonable steps were taken and all due diligence exercised to avoid the breach. 30. The major downside to that approach, where it is available, is cost. Under s.99, the undertaker may, as a condition of complying with their duty, require undertakings from the person making the request to pay to them such charges as may be imposed in accordance with charging rules. 31. The rules in question are the same as those for diversions discussed above, and the same OFWAT guidance applies. The relevant rules (paragraphs 23 to 30) are longer than their equivalents governing diversion, but the ultimate effect is the same: the requisitioner is liable to the cost of constructing the requisitioned sewer. They are not, however, liable for other upgrades to the network necessary to accommodate the new development, nor for any costs attributable to the sewer being larger than necessary to accommodate the new development, because the undertaker wishes to ‘future-proof’ it against further development. The undertaker may, but does not have to, provide an offset to reflect future income they will receive as a result of the construction. 32. Again, s.99(1)(b) allows security to be taken to secure these undertakings. 33. These costs can be substantial. Moreover, it is not possible to predict them with certainty in advance. They will include compensation payments to third parties, the quantum of which by their nature will only be known for certain once agreement is reached or a decision made. 34. But a requisition brings with it the full range of powers which undertakers have. Two in particular are worthy of comment.

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35. First, there is the power already alluded to above under WIA 1991 s.159 to construct sewers in private land, on the giving of notice. 36. While it has not been the subject of judicial determination, the scope of what this provision allows to be built appears to be very substantial, going far beyond the simple pipework. While I have used the word ‘sewer’, the power is in fact conferred in relation to ‘a relevant pipe.’ That includes any sewer or disposal main, or any lateral drain which is requisitioned, or a water main and associated pipes: see s.159(7) and s.158(7). 37. There is then provision in s.219(2) that “references to a pipe…shall include….any accessories for the pipe….and, accordingly, references to the laying of a pipe shall include references…to the construction or installation of any such accessories….” So s.159 empowers the laying of “accessories” to a pipe. 38. “Accessories” itself is a defined term in s.219(1). The definition however is non-exhaustive, but is in any event extremely wide: ““accessories”, in relation to a water main, sewer or other pipe, includes any manholes, ventilating shafts, inspection chambers, settling tanks, wash-out pipes, pumps, ferrules or stopcocks for the main, sewer or other pipe, or any machinery or other apparatus which is designed or adapted for use in connection with the use or maintenance of the main, sewer or other pipe or of another accessory for it….” 39. The next question is the compensation to which the person in whose land the sewer is laid is entitled, and which, as explained above, the developer will ultimately end up paying. The relevant provision is Schedule 12, paragraph 2, which provides for compensation to be payable in three circumstances:

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a. where the value of any interest in “relevant land” is depreciated “by virtue of the exercise by any relevant undertaker of any power to carry out pipe laying works” on private land (para 2(1)); “relevant land” in relation to any exercise of a power to carry out pipe-laying works on private land, means the land where the power is exercised or land held together with that land (para 2(5)); b. where loss or damage (not being the depreciation of the value of an interest in land) “attributable to the exercise … of any power to carry out pipe-laying works” is sustained by a person entitled to an interest in any “relevant land” (para 2(2)); c. where damage to, or injurious affection of, land (not being “relevant land” i.e. where the pipe-laying power is exercised or land held with that land) is “attributable to the exercise of the “pipe-laying power” (para 2(3)). 40. Under Schedule 12, paragraph 3, any question as to disputed compensation is to be referred to the Upper Tribunal. 41. Second, sewerage undertakers have powers of compulsory purchase so far as they need to acquire rights going beyond that which they are afforded by s.159. WIA 1991 s.155 empowers the Secretary of State to authorise an undertaker to acquire any land “required by the undertaker for the purposes of, or in connection with, the carrying out of its functions.” That extends, under s.155(2) to authorising the acquisition of interests in and rights over land, and for extinguishing of rights over land which the undertaker is to acquire. 42. Again, therefore, this is on its face a very broad provision. To my knowledge, it has however never been invoked in practice, although an inquiry is due to be held this summer which could lead to its first use. Its presence though has no doubt influenced negotiations in the past. 43. Again, compensation is payable, and the effect of s.155(5) and Schedule 9 is to apply many of the provisions of the Compulsory Purchase Act 1965 that apply in the compulsory purchase context more generally. One of those provisions which is worthy of particular note in this 64


context is Rule 3 of s.5 of the Land Compensation Act 1961, which provides that “The special suitability or adaptability of the land for any purposes shall not be taken into account if that purposes is a purpose to which it could be applied only in pursuance of statutory powers, or for which there is no market apart from‌.the requirements of any authority possessing compulsory purchase powers.â€? A well-advised undertaker, if necessary urged on by a prudent developer, should be able to use this rule to limit any ransom element which a landowner might seek to demand. Water 44. The provisions regarding water are also contained in WIA 1991, and to a large extent mirror what has been said about sewers above; the duty to divert under WIA 1991 s.185, for example, applies equally to water mains, and the powers under s.159 are equally available in respect of water mains. There are however a few notable differences. 45. First, undertakers in practice are unlikely to permit any building over or too near to a water main, because of the risks involved in building over a pressurised pipe. Under WIA 1991 s.174, it is an offence, without the consent of the undertaker, to intentionally or recklessly interfere with a main, or negligently interfere with it so as to damage it or have an effect on its use or operation. Further, by s.174(6) such an offence also constitutes a breach of duty owed to the undertaker which it can sue in respect of. Thus, a developer would be well-advised to exercise considerable caution in this, and seeking a diversion under s.185 is almost certain to be the appropriate exercise in the case of a water main. 46. Second, there are more elaborate provisions regarding the circumstances in which water undertakers can be required to provide infrastructure:

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a. WIA 1991 s.41 makes similar provision with regard to the requisitioning of a water main as s.98 in the case of sewers; a water main can be requisitioned for domestic purposes, at the expense of the developer. b. S.45 imposes a duty on undertakers to make a connection between a water main and a property for the purpose of providing a supple of water for domestic purposes. S.45(6) again provides for the person requiring the connection to pay for it so far as charging rules allow. Again, the charging rules in question (paragraphs 31 to 34) are in vague terms, but essentially provide for the charge to relate to the costs incurred in making the connection. c. S.55 provides for the undertaker to provide a supply of water to premises falling within the section for purposes other than domestic purposes, which includes under s.55(2)(a) a duty to take such steps “as may be so determined in order to enable the undertaker to provide the requested supply.” However, under s.55(1B)(b), the section does not apply to premises which are not “household premises”, which are defined n s.17C as meaning premises in which or in any part of which a person has his home.

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Wilberforce contacts Jonathan Seitler QC Call: 1985 QC: 2003 Email: jseitler@wilberforce.co.uk

Julian Greenhill QC Call: 1997 QC: 2018 Email: jgreenhill@wilberforce.co.uk

Tiffany Scott QC Call: 1998 QC: 2018 Email: tscott@wilberforce.co.uk

Charlotte Black Call: 2006 Email: cblack@wilberforce.co.uk

James McCreath Call: 2009 Email: jmccreath@wilberforce.co.uk For information about Wilberforce Chambers and our services please contact: Nicholas Luckman (Practice Director) Direct: +44 (0) 20 7304 2856 Mobile: +44 (0) 7964 101 636 Email: nluckman@wilberforce.co.uk

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Members of Chambers Michael Furness QC QC 2000 Head of Chambers Jonathan Seitler QC QC 2003 Deputy Head of Chambers Michael Barnes QC QC 1981 John Martin QC QC 1991 Lawrence Cohen QC QC 1993 Ian Croxford QC QC 1993 Robert Ham QC QC 1994 John Furber QC QC 1995 Terence Mowschenson QC QC 1995 David Phillips QC QC 1997 Brian Green QC QC 1997 John Wardell QC QC 2002 Alan Gourgey QC QC 2003 Gilead Cooper QC QC 2006 Michael Tennet QC QC 2006 Thomas Lowe QC QC 2008 James Ayliffe QC QC 2008 Lexa Hilliard QC QC 2009 Joanna Smith QC QC 2009 Paul Newman QC QC 2009 Joanne Wicks QC QC 2010 Martin Hutchings QC QC 2011 Mark Wannacott QC QC 2013 Fenner Moeran QC QC 2014 Marcia Shekerdemian QC QC 2015 Clare Stanley QC QC 2015 Tim Penny QC QC 2016 Jonathan Davey QC QC 2016 Jonathan Hilliard QC QC 2016 Max Mallin QC QC 2017 Julian Greenhill QC QC 2018 Tiffany Scott QC QC 2018 Nikki Singla QC QC 2018 Jules Sher QC Door Tenant Full-time Arbitrator

QC 1981

Stephen Davies QC Door Tenant

QC 2000

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Call 1983

John Child Call 1966 Thomas Seymour Call 1975 Mark Studer Call 1976 David Pollard Solicitor 1980 Call 2017 Judith Bryant Call 1987 Gabriel Fadipe Call 1991 Graeme Halkerston Call 1994 Emily Campbell Call 1995 Andrew Child Call 1997 Iain Pester Call 1999 James Bailey Call 1999 Edward Sawyer Call 2001 Andrew Mold Call 2003 Thomas Robinson Call 2003 Zoë Barton Call 2003 Emily McKechnie Call 2005 Charlotte Black Call 2006 Sebastian Allen Call 2006 James Walmsley Call 2007 Benjamin Faulkner Call 2008 Anna Littler Call 2008 James McCreath Call 2009 Emer Murphy Call 2009 Tom Roscoe Call 2010 Jonathan Chew Call 2010 Bobby Friedman Call 2011 Simon Atkinson Call 2011 Harriet Holmes Call 2011 Jack Watson Call 2012 Michael Ashdown Call 2013 James Goodwin Call 2013 Elizabeth Houghton Call 2014 Tim Matthewson Call 2014 Jamie Holmes Call 2014 Joseph Steadman Call 2015 Tara Taylor Call 2016 Daniel Scott Call 2016 Caroline Furze Door Tenant Nicholas Luckman Practice Director +44 (0)20 7306 0102 wilberforce.co.uk

Call 1992

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