Where a building owner suffers an actionable loss of light to his building as a result of neighbouring development, what is his remedy?
The starting position is that, in such circumstances, the owner is entitled to an injunction. The injunction may be prohibitive - to prevent the infringement of the right to light - or mandatory (where development has already taken place and the court compels the removal of the offending part of the building).
Despite the initial presumption in favour of an injunction, the court has the power to refuse to grant an injunction and award damages in lieu. The court has traditionally been reluctant to grant mandatory injunctions, particularly in commercial cases, and often awards damages instead.
The decision in HKRUK II (CHC) Limited v Marcus Alexander Heaney will therefore come as a shock to many developers. The court granted a mandatory injunction, requiring the developer to remove part of two floors of an office block. Not only had the building work been completed, but one of the floors had already been let to a tenant.
The development in the case comprised the addition of two floors to an existing office block, as well as some "infill" development behind the main frontage of the building. Unusually, the case came before the court at the instigation of the developer, who sought a declaration as to its freedom from liability following the completion of the building. It is not clear from the judgment why the developer took this step given that the building had been finished, but it may have been connected to funding.
Mr Heaney was the owner of the property opposite the development, which was a Grade 2 listed Victorian building. He counter-claimed for a mandatory injunction or damages.
There was no dispute that a right to light existed and that an addition of two floors to the developer's building involved an actionable interference with that right. The developer had initially maintained that Mr Heaney's conduct during the development debarred him from obtaining any relief. However, in the end it did not pursue this contention, and so the focus of the case was on the question of which remedy (injunction or damages) the court should award for the infringement of the right to light.
Right to light
The court applied the conventional method of measuring the loss of light and the "50% principle"; that is, if more than 50% of a room used for commercial purposes remains adequately lit after work done by the developer, there is no actionable loss. This was the case in relation to two of the affected rooms.
However, in other instances, the development meant that the area which was adequately lit had fallen below 50%. One of these was the main board room in a conference suite that was hired out to third parties. Although the other was just a stairwell, the judge did not think that this was a reason to downgrade the loss in this area, holding that well lit passages enhance the feel of a building.
The third class of case considered by the court was where a room was already poorly lit. In this case any further reduction in light will be regarded as a serious loss. A number of the rooms in Mr Heaney's building fell into this category.
The test for damages
The burden was on the developer to show why a mandatory injunction should not be granted. The court applied the four principles laid down by the Court of Appeal in the leading case of Shelfer v City of London Electric Lighting Company (1895), which were approved in 2007 in Regan v Paul Properties DFP No 1 Ltd.
Accordingly, if the developer is to avoid an injunction:
- the injury to the adjoining owner's legal rights must be small;
- the injury must be capable of being estimated in money;
- the injury can be adequately compensated by a small money payment; and
- the case must be one in which it would be oppressive to grant an injunction.
All four of the Shelfer tests must be satisfied if a developer is to avoid an injunction.
The court's decision
The court examined each of the tests in turn.
1. The injury to the plaintiff's legal rights must be small
The judge considered that the injury to Mr Healey's rights was close to the margin of what is, and what is not, small, and commented that this criterion involves an element of subjectivity. He accepted that a commercial building may require less light than a residential building. Nonetheless, he ruled that in this case the injury exceeded what could be defined as small. The judge took into account that the adjoining building was of historical significance, and that Mr Heaney had invested heavily in it.
Having reached this conclusion, the court did not strictly need to go any further, since failing one of the Shelfer tests would be sufficient to award Mr Heaney an injunction. Nonetheless, in case (as seems likely) his decision would be appealed, the judge went on to consider the other three principles.
2. The injury is capable of being estimated in money
The judge accepted that this test was satisfied.
3. The injury can be adequately compensated by a small money payment
The judge considered that the correct basis of damages was the figure which Mr Heaney could reasonably have demanded for the release of his right to light (the "buy out" or "hypothetical negotiation" measure). On that basis, the judge said that he would have awarded the sum of £225,000 (see 'If an injunction had not been granted', below). Whether viewed in absolute terms, or as a proportion of the value of either of the properties, the judge concluded that this sum was not small.
4. The case was one in which it would be oppressive to grant an injunction
The developer raised two main arguments as to why an injunction would be oppressive.
First, the developer pointed to the cost of the works that would be needed to ensure there would be no actionable interference with the right of light. The two additional floors would need to be reduced by a total of about 4,500 square feet, which would cost somewhere between £1 million and £2.5 million. In addition, valuable office space would be lost, and the developer would have to relocate its tenant while the works were carried out.
Secondly, the developer relied on the dilatory way in which Mr Heaney and his advisors had behaved.
The developer, through its agents, had first written to Mr Heaney at the beginning of October 2007, to let him know of its plans. Initial work started on site in February 2008. Although there had been some 'without prejudice' discussions between the parties during the intervening period, a formal complaint was only lodged by Mr Heaney's rights of light surveyor in June 2008. Work on the additional two floors began in earnest in October 2008.
In November - over a year since the developer had made known its plans - Mr Heaney's lawyers threatened to issue proceedings. However, this - and later threats - were never carried through. The building was completed early in July 2009. In the end, following long periods of silence from Mr Heaney, the developer brought declaratory proceedings in August 2009.
The court rejected both arguments. It considered that, in view of the total cost of the development (some £35 million, including acquisition costs), too much had been made of the cost of eliminating the infringement of the right to light. It was heavily influenced by the fact that:
- the infringement was not trivial;
- the developer knew that it was committing an actionable breach of Mr Heaney's right to light;
- the breach was committed with a view to profit; and
- the developer could easily (albeit less profitably) have built the two additional storeys with reduced dimensions.
The court concluded that "it would be wholly wrong" for it to sanction what the developer had done by compelling Mr Heaney to accept monetary compensation which he did not want. It therefore ordered a mandatory injunction against the developer.
If an injunction had not been granted
In view of the fact that the court ordered an injunction, it did not have to consider what measure of damages it would have awarded to Mr Heaney. Nonetheless, it went on to consider the point. As noted above, the court ruled that it should apply the hypothetical negotiation approach.
The judge did not find the expert valuation evidence helpful. He thought that the only solid piece of evidence was the estimate of profit prepared for the developer's board meeting prior to the works being carried out (just under £7 million), and the difference in that figure if the development was reduced by two floors (approximately £1.4 million).
However, he also noted that the developer had obtained a reduction of £350,000 in the purchase price of the office building to take account of the rights to light issue, and had then budgeted £200,000 as the price for settling any rights to light claims.
On that basis he concluded that the appropriate figure, had damages been awarded, would have been £225,000. The judge admitted that the evidence in the case was not such as would enable any judge to produce "a scientifically justifiable figure". Nevertheless, he thought that this figure "feels right". The judge rejected Mr Heaney's submission that he should be awarded more than one third of the profit from the additional two floors, ruling that this would be extravagant.
Things to consider
So just how worried should developers be following this decision? The judge himself admitted that the case was difficult. Leave to appeal is being sought, and so the High Court's ruling may not be the last word on the subject.
It is also important to bear in mind the comments of Millett LJ in Jaggard v Sawyer, cited with approval in Heaney:
"Reported cases are merely illustrations of circumstances in which particular judges have exercised their discretion, in some cases by granting the injunction, and in others by awarding damages instead. Since they are all cases on the exercise of a discretion, none of them is a binding authority on how the discretion should be exercised. The most that any of them can demonstrate is that in similar circumstances it would not be wrong to exercise the discretion in the same way. But it does not follow that it would be wrong to exercise it differently."
Each case will therefore be considered on its merits. For example, in Midtown Ltd v City of London Real Property Co Ltd, the judge (albeit for different reasons) declined to grant a prohibitive injunction where the loss of light was agreed to be very significant. Nonetheless, if the Heaney decision stands then it represents a shift in the willingness of the courts to uphold an owner's prima facie right to an injunction.
Surprisingly, the court did not appear to suggest that a stricter test was necessary for the grant of a mandatory (as opposed to a prohibitory) injunction. The decision may make it harder for a developer to resist a prohibitory injunction, since if building is yet to start then it is likely to be even more difficult to show that an injunction would be oppressive.
So what else could, or should, the developer have done to avoid this outcome? It appears to have behaved properly from the start, by keeping the adjoining owner informed as to the progress of building, and offering undertakings to pay the adjoining owner's professional fees up to a certain level. In contrast, the adjoining owner was extremely slow to do anything to assert his rights.