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Points to ponder when planning a new development

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24/01/2014

This year is heralded to be an “exciting year for commercial property”. An improving economic outlook has seen activity in the construction industry steadily increasing, culminating in eight months of growth to the end of 2013. Furthermore, this growth is not solely confined to housing and infrastructure projects; it also includes commercial building work which is rising at its fastest pace since 2007. With such an optimistic outlook, it seems fitting to bring to the fore some of the key challenges which often face any proposed development, with a view to ensuring that these issues do not delay or even derail a new development plan.

Obtaining vacant possession

Perhaps the key issue facing any development plan, and also the one which can prove the most challenging for any developer to overcome, is that of obtaining vacant possession of the proposed development site. The nature of occupation will have the greatest bearing on how difficult it will be to clear occupiers from the site. A tenant occupying by way of licence, for example, will be considerably easier to remove than a business tenant who has security of tenure under the Landlord and Tenant Act 1954 (the 1954 Act).

Where an occupier does have security of tenure, however, this does not mean that any hopes of redeveloping the land are to remain but a pipedream, as it is possible to oppose a renewal lease on a number of grounds under the 1954 Act. The ground most relied upon by developers is ‘ground F’: an intention to demolish, reconstruct or carry out substantial works of construction. It is important to bear in mind that, should a landowner wish to rely on this ground, compensation may be payable and, where a tenant has been in occupation for more than 14 years, the sums involved are likely to be substantial, as compensation will be payable at twice the rateable value of the property.

As a final point, it is also important to consider whether there are any trespassers on the proposed development land. The costs involved in removing trespassers can be considerable, especially if it is necessary to obtain a court order or instruct bailiffs to have them cleared from the site.

Rights of residential tenants

Related to the issue of obtaining vacant possession, the occupation by residential tenants of properties earmarked for development can often give developers cause for concern for two key reasons. Firstly, under the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993, tenants of flats with leases with a term of more than 21 years have the right to collectively acquire the freehold to their property or the right to extend their lease term. This can cause a potential problem where a developer’s profit depends on its ability to retain the freehold and any rental income for a period or its ability to dispose of the freehold unencumbered by any such rights.

Secondly, under the Landlord and Tenant Act 1987, in some instances, where a landlord wishes to dispose of its interest in a property comprising a number of flats, it must first offer ‘qualifying tenants’ a right of first refusal. These rights of first refusal can be of particular concern to those proposing to develop flats or mixed use buildings. In both of these scenarios, however, ensuring that lease structures are put in place, which prevent any such rights arising, offers a simple solution to what could otherwise become a major hindrance to any development plan.

Conquering rights to light

Another stumbling block along the way is that of rights to light, which are not unusual to encounter, especially when embarking upon a development project in London. A right to light gives the owners of certain long-standing buildings a right to maintain a certain level of illumination through the windows of such buildings and such rights could at worst, completely derail any proposed development and at best, could cause a developer to have to reconsider its design plans.

The options available in respect of dealing with rights to light are not too dissimilar to those available in relation to restrictive covenants. However, in addition to the possibility of seeking to negotiate with the owner benefitting from the right to light or attempting to put in place insurance, in some circumstances it is possible to approach the local authority for assistance. Under the Town and Country Planning Act 1990, local authorities have the power to step in and extinguish rights to light in certain circumstances. However, it is worth noting that the circumstances giving rise to this are limited, as the local authority must own or have owned the development land in question.

Finally, where there is a risk that a landowner might acquire a right to light by prescription (20 years’ enjoyment) before development commences, then serving a timely light obstruction notice can stop the clock running and prevent the acquisition of such a right.

Land benefitting from restrictive covenants

Whilst by no means the only other obstacle facing developers, the final one which we will discuss, and one which is often encountered when development is proposed, is the existence of restrictive covenants which make any development subject to an adjoining landowner’s consent being obtained, for example, or which restrict the use to which the land can be put.

Fortunately, there are a number of options available in situations such as these, the first of which is to consider whether it is possible to negotiate with the person benefitting from the restrictive covenant. It may be that they are willing to release the development land from the burden of the covenant, in return for payment of a sum of money, for example. In many instances, insurance can often be put in place to protect against any claim which might arise due to a breach of the terms of the covenant. Lastly, where a restrictive covenant appears to be obsolete or of no practical benefit to anybody, then making an application to the Lands Chamber in the Upper Tribunal for release or modification of the restrictive covenant is a possibility also worth considering.

Lessons learnt?

The key message which this article seeks to convey is that, whilst there are many issues meriting consideration when embarking upon a new development, in only but a limited number of circumstances should those issues prove to be insurmountable. Careful and timely planning and involving your advisors at an early stage should, for the most part, ensure that any proposed development becomes a reality.

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