Airspace development : What should I consider?

In 2017, Knight Frank’s Skyward Report found that there was potential for 41,000 new dwellings to be built in London roof space through airspace development (otherwise known as rooftop development). This was reported to equate to 28 million square feet of potential additional residential floorspace and the unused airspace was valued at £51 billion.

Although Knight Frank’s report focussed on London, it highlights the development potential in each of our inner cities’ roof and air space and the profits that could be made by developers undertaking such activities. In addition, changes to permitted development rights have streamlined developers’ abilities to undertake rooftop development. Since August 2020, developers have been able to build flats on top of existing buildings without obtaining planning permission in certain circumstances.

3 legal issues to consider around airspace development

If you are a developer looking to take advantage of these opportunities, there are various points that you should consider at the outset. This article discusses three legal issues which should be assessed before you agree to purchase a residential property for airspace development.

Will my development affect rights of light to adjoining properties?

First, check the title to the property and the titles to the surrounding properties for any reference to rights of light. These may restrict your ability to develop the site and make it unsuitable for upward extension.

If the titles do not refer to rights of light, you are not necessarily in the clear. Rights of light come into existence if they have been actually enjoyed for 20 years or more without consent. They attach to buildings even if those buildings have been boarded up or knocked down and re-built with windows in the same positions. An argument of abandonment will not defeat a right to light claim.

The remedies of a beneficiary of a right to light are severe. An injunction may be awarded prohibiting your development. You could even be required to take the offending part of the development down. You should therefore consider carefully whether any adjoining buildings may have the light reaching them restricted after your development has completed. If you are unsure whether any rights to light will be affected, you should appoint a specialist surveyor who will be able to create a development envelope in which you will be able to build without breaching any potential surrounding rights to light.

If your rights of light survey or title investigation reveal that some properties who have the benefit of rights of light will be affected by your development and building within the development envelope suggested by the rights of light surveyor is not workable, it may be prudent to look for rights of lights insurance. Rights of lights insurance can provide cover for losses and costs incurred as a result of someone bringing a claim for rights of light. You should consider any draft policy provide carefully, in particular, you should consider:

• whether the level of indemnity is sufficient (does it cover the gross development value of the property);
• whether an excess will be payable in the event of a claim (and if yes whether the level of excess is acceptable). You may wish to consider whether that excess should fall away after the build reaches a certain level;
• what costs the policy will cover – will all of your contracts and the payments due under them be covered by the policy; and
• in what circumstances would the policy become void – for example, you should ensure that you have not discussed rights of lights with any potential beneficiaries before taking the policy out, otherwise the policy may be deemed void by the insurer.

If an indemnity insurance policy is not available it may be possible to approach the beneficiaries of the rights of light to agree an express release of those rights. However, this should not be done until all other avenues have been exhausted as once this step has been taken, insurance will not be available.

If you would like any assistance in reviewing or obtaining a rights of lights insurance policy or agreeing an express release of rights of light, please do not hesitate to contact us.

Will my development be affected by the Tenant’s right of first refusal?

Once you have considered the rights of lights issue, you should consider whether the tenant’s who occupy the property at present have a right of first refusal in respect of the roof space under the Landlord and Tenant Act 1987 (as amended) (“the Act”). Residential leaseholders have a such a right of where a relevant disposal is made of the freehold or another part of the property.

The right of first refusal will apply where over 50% of the flats in a property are occupied by qualifying tenants (such as long leaseholders) and 50% of the internal floor area of the Property is used for residential purposes. If these criteria apply it is likely that the seller will need to serve notice on the tenants before being able to sell the freehold or grant a lease of the roof or air space as these transactions will be considered relevant disposals for the purpose of the Act.

If you do not want to serve a notice on the leaseholders under the Act, you will need to carefully consider the structure of the deal. Notices may not be required in certain circumstances such as:

1. The grant of a lease of airspace by the freeholder where there is an intermediary headlease between the freehold interest and the qualifying tenants (provided that the headlease was put in place before more than 50% of the property was occupied by qualifying tenants);
2. Where the relevant disposal takes place between two companies that have been considered connected for more than two years prior to the date of the disposal; or
3. Where a building agreement is entered into with the developer, rather than the grant of an interest in land.

Before proceeding to purchase a property, you should therefore ensure that the deal is structured in a way that will not trigger a tenant’s right of first refusal or that the relevant notices have been served (and sufficient time has lapsed) before proceeding with the transaction. If the relevant notice was not served correctly by the seller, the tenants may be able to force you to sell the property to them on the same terms on which you brought it.

Should you require advice on whether a notice is required to be served before entering into an agreement to develop a property or how to structure the proposed agreement to avoid it becoming a relevant disposal, please do not hesitate to contact us.

Do I need planning consent for an upward extension?

Finally, you should consider whether you require planning consent for your proposed works. At present, additional storeys can be added to existing buildings comprising a range of uses without the need for formal planning consent. However, please note that such developments will still need prior approval from the relevant Local Authority to ensure that any proposed development will not adversely affect neighbouring properties. Any prior approval application will need to address the impact on adjoining premises including overlooking and any potential loss of light together with details on the appearance of the development. Read our Planning team’s recent blog for further advice on prior approvals relating to upwards extensions to existing buildings.

Any larger development proposals are likely to require planning.

If you would like any advice on the planning aspects of upward extensions and airspace development, please contact me in our Development team or a member of our Planning team.