A Landlord’s right to develop – Flat out of luck?
25th October 2018
Picture buying your dream flat. A penthouse apartment in an upmarket area of the city. Your balcony providing you with stunning views of the city and uninterrupted light for those rare sunny days. Until, that is, you are served a notice that your landlord intends to add extra floors to your property. A new balcony from the flat above will now block your light and the once top floor apartment is now just one of many in the block.
These are the situations where leasehold covenants are supposed to protect the lessee, but there is confusion as to just how much protection they offer. Developers too have to contend with uncertainty when they buy freeholds with the intention of renovating and developing. A freeholder may deliberately reserve his right to develop, only to be thwarted by an interpretation of the covenant to quiet enjoyment.
It is a general rule that the freeholder owns the airspace above a property. Port v Griffith  1 All ER 295 states that the freeholder has the right to use the property as they please, regardless of detriment to the leaseholder. This has been the position in the courts since that judgement.
Whilst the freeholder may use his property as he likes, he may bind himself via covenants. Much like freehold covenants, these would prevent development actions, which could be of detriment to lessees. The most common of these is the covenant of quiet enjoyment. Whilst breach of this covenant can be used to prevent developments like the aforementioned, the position of the courts is not entirely clear. Timothy Taylor Limited v Mayfair House Corporation and Another  EWHC 1075 (Ch) set out the key points for developers to consider, but they were limited to the scope of that case. In short, considerations of where scaffolding and hoists were placed became a material consideration, as did the landlord’s conduct and planning of the scheme. Breach is not limited to the development itself, but excessively noisy tenants in the new flat could cause a breach as it did in Southwark LBC v Mills  3 W.L.R. 939.
The example above seems rather clear cut, in that the loss of a balcony would be a material breach of quiet enjoyment. However, whilst the recent case of Francia Properties Ltd v Aristou & Ors  L. & T.R. 5 acknowledges loss of sunlight as potentially a breach, the judge ruled that the new balcony would not ‘materially’ or ‘substantially’ affect the use of the balcony.
How do we resolve this? For leaseholders, they should ensure that there are covenants which prevent development in their lease. These need to be clearly worded, as the claimant in Francia discovered when their arguments that the wording in the lease prohibited development came to nought.
For developers, the route is less clear. Careful attention to the wording of individual leases must be considered. If the lease does not prohibit development, then careful planning must be undertaken to minimise disruption to tenants. Conduct is key, similar to the current position in rights of light, where the developer’s behaviour will often play a key role in any judgement. The use of materials, sound-proofing and ensuring the new flats will not create issues for the current lessees are also important considerations.
The overall picture for a freeholder seeking to improve and expand their property is not an easy one. Whilst the rights of tenants should always be protected, insufficient planning could leave developers out of pocket and paying hefty legal fees. Thought should be given to legal indemnity insurance or escrow accounts to ensure developments are not stalled by vexatious litigants. Without one of these contingency plans, or a combination of both, a developer may find themselves out of pocket.
To find out more, contact the Underwriter below:
+44 (0)207 337 8778