The shortage of housing sites and high land prices are prompting developers to look for opportunities to build over existing buildings, while residential owner occupiers are incentivised by high rates of SDLT to extend upwards or downwards rather than moving home. Such development sometimes requires the grant of an "airspace lease", but if you are considering this you should bear in mind:
- The importance of establishing that the airspace is actually available to be leased. In Ralph Kline Ltd v Metropolitan and County Holdings Ltd it transpired that a lease of buildings included the air above, so a subsequent airspace lease was subject to the buildings lease and therefore of no practical use to the developer.
- Airspace may be included in the common parts of the building beneath, in which case the tenants may have statutory rights of first refusal in relation to an airspace lease.
- The tax consequences where airspace is being added to an existing interest. Different leasehold structures may have very different SDLT consequences and VAT treatment may not be straightforward, for example the airspace above residential property may not itself be treated as residential.