knowledge | 2 August 2018 |
Traps for the Unwary Developer and Tips on How to Avoid Them
Property development is a complex business. It can take years to assemble all of the physical components of a site to make it viable for a particular building or scheme. Even if the plot is bought as a single site, it can be a legal jigsaw, with different rights or restrictions. Working with the legal title to the site is key to a smooth and successful development. Easy when you know how, we share some tips on how to do just that.
1. Reflect the Title in the Design
Use, lay-out, aspect and access are not just aesthetic design issues. They may also be title issues that the design can respond to. For example, if part of a site is held under a possessory title it may be possible to design the project in a way that minimises the impact of this on the commercial value and saleability of the units.
The recent case of Lea v Ward 1 in England is an example of how the law might support a developer in altering existing rights, in that case, a right of way enjoyed by a third party. But in principle, and unless the terms of the right expressly allow it, rights enjoyed over land cannot simply be re-routed or otherwise altered by one party. It therefore makes good business sense to consider how defects, rights and restrictions affecting the title can be best accommodated within the design of the development, or alternatively whether a further agreement to alter the right to facilitate the development might be necessary.
2. Examine the Extent of the Rights Benefitting the Site
A development site will very often also benefit from rights of way or other easements for services and utilities. As for rights enjoyed by third parties, unless the terms of the right expressly allow it, these rights can't be altered by one party. This means that if the development would effectively extend the right to benefit other lands or intensify use of the right beyond what was originally intended, the developer will need to consider its options for further agreement.
3. Assess the Impact of Restrictions
The principle that damages are available for breach of restrictive covenants was developed in England in the 1970s in Wrotham Park Estate Co Ltd v Parkside Homes Ltd 2.In that case the defendants developed a housing estate in breach of a restrictive covenant benefitting the plaintiffs' land. Refusing a mandatory injunction to demolish the houses on policy grounds, the Court awarded damages to the plaintiffs instead, assessed at 5 per cent of the defendants' profits. "Wrotham Park damages" have since been accepted in Ireland as an appropriate approach in cases of breach of restrictive covenant3 and were in fact adopted by the Irish High Court in separate cases in 20104 and 20125.
It follows that early consideration of the effect and options in relation to restrictive covenants is important. If a restriction binds only part of the site, there may be potential to design around the restriction. Where this is not possible or commercially viable, there may be a legal right to buy the freehold, which effectively cancels the restriction. Alternatively, there is the possibility of reaching a commercial agreement to buy the restriction from the person entitled to enforce it.
If Wrotham Park cautions against breach, the recent case of Jackson Way Properties Ltd v Smith6 however also highlights how the correct legal interpretation of a covenant is key to how it ultimately affects a developer. In that case the High Court found that a covenant which an adjoining owner claimed to operate as a restrictive covenant, was in fact a personal covenant between the original parties to the covenant and so did not in fact bind the land so as to restrict development by the new owner.
4. Consider the Neighbours
An unexpected claim that could require a late stage redesign or demolition could be very costly. Rights to light and privacy, both usually undocumented, are increasingly being asserted by adjoining owners, frequently only coming to the attention of the developer, when it becomes clearly obvious that the development will cause interference. This may be at the planning stage or later when construction is underway, ie after the developer is committed to the development.
A number of cases in England highlight the difficulties rights to light in particular can cause for developers. In the 2010 case of HKRUK II (CHC) v Heaney 7 the Court granted an injunction against a developer who had infringed the right to light of a neighbouring property despite the fact that the proceedings were not issued for 18 months after the building was finished. The Court's decision to grant an injunction and order that the developer demolish part of the building, rather than grant an award of damages, highlights the potential cost to a developer in failing to fully appreciate the impact of a right to light.
However it is not the case that a right to light exists in all circumstances in favour of all types of property, and a right to light does not arise automatically. In legal terms, for a right to light to exist, an easement of light in favour of a building through an opening (usually a window) needs to be established and a claim will only succeed if the obstruction to the light causes a nuisance. The legal principles and parameters around rights to light were established in the English case of Coll v Home and Colonial Stores Limited8 and have since been adopted in the Irish Courts9 but there is no recent Irish caselaw to show how the attitude of the Irish Courts may have evolved or whether the Irish Courts would endorse Heaney. Developers can only proceed with caution until further legal clarity comes.
5. Be Mindful of Occupiers
If works are planned to a property which is not vacant, it pays to be mindful of the rights of occupiers. This is best highlighted by the 21016 English decision of Timothy Taylor v Mayfair House Corporation10. The tenant in that case was running a high end gallery in Mayfair, London from the basement and ground floor of a larger building. The landlord undertook major renovation works to the building. The tenant sued the landlord for breach of its right to use the premises free from the disturbance. The Court found that the combination of the scaffolding, the lack of consultation and the landlord's failure to recognise and compensate the tenant for the loss of business resulting from the works, all amounted to an unreasonable exercise by the landlord of its rights. The Court ordered a rent reduction for the duration of the works and left it up to the tenant to apply for an injunction if the disturbance got worse.
6. Look to the Future
Looking to the future, one way of maximising investment potential is to ensure that the legal agreements entered into with new tenants and occupiers of the development reserve appropriate rights to the developer for further development of the site. This will be subject to commercial agreement, the nature of the agreement with the occupier and the relative bargaining power of the parties. What is appropriate will also vary from site to site. Rights are often generally reserved in favour of developers to build on other lands but these will not specifically cover adding an extra storey or basement to the existing building unless this is specifically considered and provided for. This could be a very valuable right for prime city centre sites in particular.
-  EWHC 2231 (Ch).
-  229 EG 617.
- Arthur Conneran and Anor v Corbett and Sons Limited and Anor  IEHC 254 Laffoy.
- Victory & Leavy v Galhoy Inns Ltd  IEHC 459.
- The Minister for Communications and Ors v Figary Watersports Development Company Ltd  IEHC 601.
-  IEHC 115.
-  EWHC 2245 (Ch).
-  AC 179.
- O'Connor v Walsh (1908) 42 ILTR 20; Smyth v Dublin Theatre Company Ltd  IR 692; Gannon v Hughes  IR 284; McGrath v Munster and Leinster Bank Ltd  IR 313.
-  EWHC 1075 (Ch).
This briefing is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.