This case concerns a hotel development in the City of London, located in Moorgate, a few minutes’ walk from the Bank of England. The developer Florala had PC’d the scheme and a hotel operator was in occupation and trading, when this case came on for hearing at the High Court in London for a 4 day trial with live evidence from multiple witnesses and expert evidence from four valuers on rights of light, office valuation, hotel valuation, and design feasibility. The claimant Beaumont operated high quality serviced office accommodation in a building adjoining the Florala hotel, and sought a mandatory injunction requiring the demolition of the Florala scheme to the extent necessary to restore light to their offices.
A few main themes emerge from this important case:
1. Injunction
Following the Supreme Court case of Coventry v Lawrence, there had been some hope for developers that an injunction might not be automatically awarded for every nuisance caused by loss of light. This case reminds us all that an injunction is still the primary remedy and that the burden of proof is on the developer to show why an injunction ought to be avoided. The mere fact that a building has been PC’d and is occupied is not in itself sufficient evidence of “oppression” to avoid a mandatory injunction to demolish. Interestingly, Florala did not provide any evidence of the cost of any cutbacks, thus leaving open the question whether it would be sufficient evidence of “oppression” if cutbacks were disproportionately expensive. Similarly, here Beaumont did not seek an emergency injunction to stop construction on site and the court held that this was not to be held against them. It was sufficient that Beaumont wrote to Florala objecting to the works; from that point onwards Florala built at risk. We do not know whether Florala had any rights of light insurance in place, but if they had, it might not have covered them for all losses from this point. It is typical for insurance policies to carve out losses from agreements (e.g. building contracts or pre-lets) entered into after proceedings have been issued or a claim has been notified.
2. Book values
Neither side argued for damages based on the conventional valuation of loss of light in terms of book values which assume a value of light lost at £5 per square foot. Of course book values are often used by parties to assist them to come to a reasonable settlement figure and that approach is likely to continue in terms of market practice. However developers should treat with caution any technical analysis or rights of light report based purely on a mechanical 3 or 5 times uplift of notional book values. You are looking for a surveyor’s report which sets compensation budgets by reference to the surveyor’s professional judgment of where deals tend to be struck, taking into account a myriad of factors such as the severity of light loss, the use of the impacted property and – crucially - the assumed risk profile of the neighbour. We may now begin to see a softening of the reliance previously placed on book values.
3. Beaumont’s actual loss
The valuer on behalf of Beaumont gave evidence of rents achieved within comparable lettings before and after Florala’s development and sought to rely on the reduced rents as evidence of the loss caused to Beaumont by the loss of light. The valuation evidence was lengthy and complex, and took up a large proportion of the live evidence and court time. What is notable is the difficulty in establishing causation; how were Beaumont to prove that the reduced rents were caused by the loss of light as opposed to other factors that were present? Florala pointed to the following which they argued all had a depressive effect on rents: the Brexit referendum; the presence of scaffolding during the lengthy construction works which would have undoubtedly put serviced tenants off; another development site nearby which caused general construction nuisance, and finally the fact that service office accommodation saw increased competition in the City during this period. Nevertheless the judge found that the loss of light generally caused a 2.5% reduction in rents equivalent to £20,000 per annum across the affected space. This resulted in a capitalised sum of say £240,000.
4. Profit share
Whilst the court granted a declaration that Beaumont was entitled to an injunction as against Florala, the court also stated that if Beaumont wanted to secure an actual order for an injunction, they would have to join the hotel tenant into the proceedings. For that reason the court went on to decide what measure of damages would be appropriate in lieu of an injunction. The court came down firmly in favour of damages based on the classic hypothetical negotiations for a release of rights, which would look to award a share of the profit derived from the offending massing. The court said that a 50% share of profit was simply too high and did not adequately reflect the developer’s risk in proceeding with the scheme. Following a line of cases, the court awarded damages based on a one third share of profit, which in this case came to £350,000. The court sense checked that figure to see if it “felt right” against the expert valuation evidence of the impact of the loss of light at £240,000 and stated that a figure of one third “would not be out of all proportion to Beaumont’s actual loss of £240,000”. This leaves open the interesting question of the appropriate measure of damages in those cases where the two figures are out of all proportion.
5. Conduct
As always in injunction cases, conduct is key. Here Florala were branded by the judge as acting in a “high handed or at least unfair and unneighbourly manner”. Was the judge a little harsh given the context and background? There was evidence that Florala had made the initial approach to Beaumont and considered making an initial offer of compensation based at a 5 times uplift of book value at £155,000; and there was further evidence that they had consulted with Beaumont and implemented a partial redesign of their scheme to restore light to the one room which originally went from well-lit to insufficiently well-lit. And all this against the context that Beaumont had itself carried out its own development a few years earlier, adding a sixth storey, for which no compensation had been agreed or paid to Florala’s predecessor. Despite this, the court took a dim view of the developer’s behaviour. It is imperative therefore for developers and their advisers to carefully consider the strategy at an early stage and ensure that the developer’s behaviour is impeccable under scrutiny. Obvious things to consider include initiating an approach, issuing appropriate undertakings for the neighbour’s costs, sharing technical analysis and making appropriate offers on an open basis. Careful consideration should be given to any insurance policies which contain agreed conduct obligations which cut across or constrain such behaviour.
6. Money money money
It is a classic statement of the law that a court will refuse an injunction if it is clear that the neighbour is really only interested in money. However this case suggests that the threshold for proving this is high. Here there was evidence of a deed agreed between Beaumont and the previous owner of the building as part of a sale and leaseback transaction under which any damages awarded for loss of light would be shared between the parties. The court held this was equivocal and did not demonstrate that Beaumont were only after money. In a similar vein, during live witness cross examination, Beaumont gave evidence that they discussed figures with Florala at a number of meetings and said “This was the figure we would need”. Despite the existence of the deed and the live evidence, the judge held the discussions around money merely evidenced why Beaumont were so keen to preserve their light and did not demonstrate that they were really only interested in money. Clearly the court formed its impression based on the witnesses and evidence before them, but this case raises an important question as to what kind of evidence would satisfy a court on this front. As always, impression and perception is key. It is possible that even subtle differences in evidence could lead to a different conclusion in another case. How would the courts approach a situation where a party has released its rights in exchange for money to an agreed profile but the constructed scheme breaches the profile?
7. Waldram v Radiance
Ever since the Law Commission consultation paper on the reform of rights of light, there had been increasing debate as to whether the Waldram basis of assessing loss of light, dating back to the 1920’s, is still appropriate today. The court here held that Waldram had stood the test of time and was still the appropriate starting point. So we can expect to continue to see the classic EFZ tables and contour drawings in all well drafted rights of light reports. However the court was receptive to looking at new ways of deciding whether there is a perceptible reduction in light to a neighbouring building, and considered evidence based on Radiance, which also takes into account reflected light rather than being narrowly focussed on sky visibility. The court held that these images were helpful, although it was to be noted that the reflected light (e.g. from light colour cladding, white rendering or paintwork) on which these assessments were based was not guaranteed and such factors could be subject to change at any time. So these types of modelling, and also climate based daylight modelling (which takes into account variances in climate and weather) have a role of play in understanding whether a nuisance is caused, but Waldram is here to stay at least in the medium term.
8. Objection to planning
Does it matter that an impacted neighbour has not objected to the developer’s application for planning permission? Whilst it might be considered that public law and planning should be entirely separate from private law and rights of light, the judge left this point open and suggested that in an appropriate case any lack of objection at planning might be a significant factor to be considered when deciding whether to grant an injunction. The judge said “Had Beaumont been seeking a demolition of the entire hotel or a cutback what would make it inoperable, then the fact that the hotel has planning permission which Beaumont did not oppose, might have been significant. But here, all Beaumont is seeking is a relatively small cutback”. This is an interesting point and one that may be developed in an appropriate case.
9. Poorly lit premises
It was accepted by the parties that the Beaumont serviced offices were already poorly lit. Florala argued that if a poorly lit building is merely made worse lit following a development, no nuisance is caused. The court rejected this concept. It is not just loss which takes a room from well lit to poorly lit which is actionable. Where a building is already poorly lit, any loss of light which would make the space substantially less comfortable and convenient than before, is actionable, although not every perceptible loss is a nuisance. Here the court held that given the intense competition for serviced office accommodation, every little shift in advantage or disadvantage mattered. This is a sensible restatement of the basic principles of what constitutes a nuisance. This does mean however that developers should treat with caution any over reliance in rights of light reports on the so called “50/50 rule” or any undue emphasis on any threshold for what is “well lit”. Everything must be considered on a room by room basis and in this regard the shape of the contour of light loss will be important – is the loss evenly spread in a thin sliver across the room or is the loss pooled in an area in the middle and nearest to the window? Developers will as always need to rely on expert surveyor advice and any mechanical reliance on so called thresholds is likely to be misplaced without a more nuanced assessment of the quantum location and nature of loss.
Whilst this case is fact specific, it reminds us all that building without resolving rights of light issues is a risky venture. Loss to commercial space may be protected by an injunction, and the key test is whether the loss makes the space substantially less comfortable and convenient than before. Evidence of reduction in rental income is likely to evidence this. Crucially, conduct is key and developers should be mindful of how their conduct would be perceived by a judge. One can also expect well advised claimants to join in occupying tenants (after PC) or say a building contractor (during construction) in order to maximise the impact of any adverse order if secured. Developers should carefully consider their strategy and seek to engage where appropriate in good time and in a neighbourly manner. Developers should also carefully scrutinise any insurance products which constrain or govern their conduct to assess to what extent such policies cut across any preferred form of neighbourly conduct.
We understand that Florala have sought permission to appeal.
