Property development is a complex yet highly profitable business. Whilst there are huge profits to be made from developing and selling properties there are also huge risks of financial loss.

One factor for consideration is ‘rights of light’. If a property developer suffers a rights of light claim then this could spell disaster not only for the project but also for the brand equity and the bottom line. If a court awards an injunction to protect an injured neighbour’s rights then it is not unknown for a developer to shelve a project, walk away, or demolish the property after completion.

Rights of light insurance is designed to cover legal costs including settlements as well as reduction of land value. Rights of light insurance effectively helps developers transfer the financial risk off their balance sheet.

What can be covered?

Losses resulting from claims from third parties, whose property has or will be injured by the proposed development (as identified in the rights of light surveyor’s report) in terms of:

• Reasonable and necessary legal and professional fees and expenses;
• The cost of any settlement with an injured party;
• Damages, compensation, costs and/or expenses awarded against the insured by a court;
• Costs of altering, demolishing and/or reinstating the property, including any part of any building or other construction on it, insofar as such alteration, demolition or reinstatement is required by a court order or settlement;
• Reduction in the market value of the property as a result of having to amend the building to respect a third party’s right of light;
• Any sum paid with the prior written consent of the insurer to free the property from the right of light;
• Any sums (including capital expenditure and professional fees) which the insured has actually expended on the property or was contractually obliged to expend under a contract made prior to the date when an insured became aware of a right of light claim to the extent such sums are made abortive by a court order.

Additional cover includes:

• Delay costs cover in the event that the development has to stop (either on the instruction of the courts or the insurer) whilst a right of light matter is dealt with.
• Loss of rent cover in the event that a tenant under an agreement for lease is unable to occupy the property as a result of a right of light claim and is subsequently lawfully able to withhold rent otherwise payable to the landlord.
• Loss of trading profits cover in the event that a commercial tenant is unable to occupy the property from the contracted date, resulting in a loss of income during the period of unoccupancy.
• Tenant’s relocation costs in the event that a tenant under an agreement for lease is unable to occupy the Property as a result of a right of light claim and consequently needs to seek alternative accommodation.
• Protection against a light obstruction notice (LON) being overturned allowing the owners to assert a prescriptive right of light.
• Cover against express rights of light i.e. those granted by deed as well as prescriptive rights of light.
• Agreed Negotiations Strategy to allow an Insured to undertake pro-active negotiations while capping costs and protecting against the financial risk of an injunction.

Best practice advice from Bespoke Risk Solutions

• Do not make an approach to a proprietor of or agent acting for a party who has an interest in any of the Insured properties to discuss rights of light.
• Do not reveal the existence of the insurance policy to any third party not acting on behalf of the insured – if in doubt; contact the Insurer before disclosing the policy.
• The property should be developed in accordance with the Insured Use only – any alteration to the design, which might affect the right of light position, should be referred to the insurer for acceptance.
• As soon as a potential right of light claim materialises, notify the Insurer accordingly. Do not enter in to any communication or correspondence with the claimant without the prior approval of the insurer (other than in relation to agreed negotiations). Otherwise, continue to communicate with your neighbours on general development matters as you would if there were no right of light issues.

Technical considerations

It is possible to interfere with an adjoining property’s right of light without causing a technical infringement, as it is the amount of light that a room is left with that is critical. As long as the light that is left is considered sufficient, then no injury will have been caused. Using the rule established in Carr Saunders v Dick McNeil Associates 1986, that sufficient light is where one lumen of light is available, at tabletop height, for 50% or more of the room area. This is measured today as the amount of sky visible through a defined window opening at a particular point within a room. On the basis that an overcast sky provides 500 lumens, 1 lumen per square foot equates to a sky factor of 0.2%. The easement of light is directly related to the amount of sky visibility available on the working plane and it is this that is measured by rights of light surveyors to assess an injury. If an injury is caused [i.e. the amount of light to an aperture is reduced below 50% – 55% or if already below this percentage, by any further amount], there are two basic remedies open to the injured party; seek an injunction, or accept damages.

For more information contact Bespoke Risk Solutions on +44 (0) 1702 200 222

Bespoke Risk Solutions Limited are an Appointed Representative of Leisureworld (GB) Ltd who are authorised and regulated by the Financial Conduct Authority (Financial Services Register No. 749920) You can check these details by visiting www.fca.org.uk

Bespoke Risk Solutions Ltd are registered in England and Wales No. 07292153. Registered office: Victoria House, 50 Alexandra Street, Southend-On-Sea, England, SS1 1BN Leisureworld (GB) Ltd are registered in England & Wales No. 02663024. Registered office: 1422/24 London Road, Leigh On Sea, Essex, SS9 2UL.