Update: construction

When it comes to rights of light, the question will always be 'how much will this cost me' (if you act for the developer), or 'what will we get if the court refuses an injunction' (if acting for the neighbour).

The case of Midtown Ltd v City of London Real Property Co Ltd [2005] EWHC 33 sent out what many commentators thought was a clear message (although as we shall see not one the courts upheld for long) that an injunction was not the automatic remedy for injuring a right of light, particularly if an injunction was preventing worthwhile development.

In Regan v Paul Properties Ltd and Ors [2006] EWCA Civ 1319, Mr Regan was granted an injunction by the Court of Appeal forcing Paul Properties Ltd to tear down some of their development (though they appear to have negotiated a deal to avoid this; no doubt at a significant premium). The diminution in value to Mr Regan's maisonette would be around £5,500. If the development had to be cut back to remove the injury, the value of the cutback element was £175,000. After Midtown it was expected that Mr Regan would not obtain an injunction and instead would receive 30 per cent '“ the rudimentary percentage award in Midtown '“ of £175,000, i.e. about £50,000-£60,000. This would more than make up for the diminution in value of his maisonette (£5,500).

The Court of Appeal actually upheld the injunction. Practitioners, and their clients, should bear in mind that even though Mr Regan's property was residential this was not referred to as a factor and so no distinction can be made from commercial properties unless and until the courts explicitly do so. The court reiterated that an injunction is the primary remedy and developers cannot automatically buy what is not for sale.

Tamares (Vincent Square) Ltd v Fairpoint Properties (Vincent Square) Ltd [2007] EWHC 212 then lead many commentators to state '“ incorrectly '“ that where damages are awarded in lieu of an injunction it would be 33 per cent of the identifiable profit that would be attributable to the area necessary to be cut back if an injunction was granted.

The principles in the case (see later) contain no set percentage and highlight that there never have been such set percentages.

Following Forsyth-Grant v Allen & Anor [2008] EWCA Civ 505, some observers incorrectly believed that the courts would award between 15 and 33 per cent as the entitlement to the share of the profits.15 per cent was because the court penalised the greedy claimant for claiming an account of 'all' profits of the development and for refusing to even listen to what the developer had to say.

Applicable principles

The court in Tamares summarised all of the various points to have come out of the case law, including the case law from far earlier than Midtown or Regan, and advanced eight principles that are generally applicable (see table). The principles state that, overall, the court must attempt to find what would be a 'fair' result in a hypothetical negotiation between the parties, taking account of the context of the breach. Also, because he has the right to prevent a development, the owner is in a strong bargaining position and can normally expect to receive some of the likely profit from the development. If there is no evidence of the likely size of the profit, the court can award a suitable multiple of the damages for loss of amenity, and if there is evidence the court should normally award a sum which takes into account a fair percentage of the profit. However, the size of the award should not be so large that it would prevent the development from going ahead. Overall, when a decision has been reached, the court must consider whether the 'deal feels right'.

Looking at the totality of the eight principles it is clear that there is little by way of hard and fast methodology, and there are certainly no fixed percentages. It is full of perception, gut feeling and educated speculation.

If there is no identifiable profit figure the 'loss of amenity' does not, despite what some commentators believe, have a set multiplier that applies in all cases. Tamares makes clear it is a 'suitable' multiple; in other words each case has its own suitable multiplier.

Calculating damages in lieu of an injunction

In today's economy, the initial test in calculating damages in lieu of an injunction would be to ask whether 'profit' was identifiable as per principles 4 and 5 in Tamares. Developers, whose buildings are coming to market right now, would say there is no profit, and would add they are making a loss of £X. They may flippantly ask if the neighbour wants a share of £X. My suggestion would be to say 'yes'.

If we replace 'profit' with 'value to the developer' in the Tamares principles then they still work. By keeping the part of the building that will cause the injury, the developer is minimising £X, i.e. gaining something of value. Therefore a loss of £15m reduced to £10m, has £5m of value obtained by the developer. Does the neighbour get 33 per cent of that sum? No, they are entitled to a sum that feels right based on all eight principles.

Developers will respond with disbelief. Facing a heavy loss, a developer will be loath to pay money to reduce that loss '“ essentially because they see no tangible return.

Developers face a risk of an injunction or paying compensation that cannot be quantified with real certainty in advance. The developer is the one looking to take away another party's rights against their will, so will have to work hard and be clever to ever come out of litigation in any way a 'winner'. The costs of litigation will be very high and may be better utilised in sweetening the deal for a neighbour. If developers resist the share of the loss argument and don't multiply amenity sufficiently then they run a real risk that the court thinks injunction is the remedy.

Neighbouring owners may now wish to protect their rights more than they would have done in a buoyant financial market because decreased light levels are not helpful when they are already struggling to find tenants. Affected neighbours have to weigh up an injunction, when and how to listen to the developer's proposals and work out what 'feels right' to release their rights.

Ultimately, the court may disagree with the argument posed here; however in such circumstances will the court then be guided or influenced subconsciously by the figures when multiplying the amenity value? In Regan, had an injunction been refused and had there been a loss on the development, what would the figure have been in lieu of an injunction without a profit figure (even a negative one) to benchmark it upon?

There are many other factors and permutations that come in to play that affect whether an injunction will be possible, and how to calculate the profit/value etc, than are detailed here.

It is highly unlikely that a developer has a back-up development, particularly on larger and more prestigious developments. The knock-on losses are incalculable. Will that famous architect agree to redesign their masterpiece? Certainly not for free. What are the extra costs of demolition and the new building costs caused by all this? Will the contractor and sub-contractors instigate penalty clauses?

Developers will not voluntarily pay 33 per cent of £5m. The likelihood is that they will chance some money on legal costs and try and get that down to a much lower figure. If they fail then they may end up paying £1.65m (god forbid the court awards even more because 33 per cent is not a definite top end either) as well as their own legal costs and their opponent's costs '“ over £2m in total. If they succeed they may spend £100,000 fighting most of the case which could lead to an anxious opponent who will eventually accept £500,000 '“ which is only 10 per cent.

Smaller developments are not immune to major risk taking. In Regan how much did Paul Properties end up losing on their gamble? Certainly far more than the £175,000 extra profit they were trying to protect in the first place.