HKRUK II (CHC) Limited v Heaney

 

The Message

Developers must not proceed without first resolving right to light claims by adjoining occupiers.

The Case

In the first major reported case involving a completed commercial development, the Court has had to decide whether an injunction should be granted to prevent interference with an adjoining owner’s rights to light or whether damages would be an adequate remedy HKRUK bought the building now known as Toronto Square, Infirmary Street, Leeds in December 2007 for £18,750,000, The price paid had been reduced by £350,000 to allow for claims by neighbouring owners or occupiers that the proposed development would infringe their rights to light through the windows of their buildings. The proposed development included the reconstruction of the 5th floor and the addition of 6th and 7th floors.

Mr Heaney, the Defendant, had purchased the adjoining building at 2 Infirmary Street in 2003. It was the former headquarters of the Yorkshire Penny Bank and, according to the Defendant, he had spent some £3 million in restoring it as ca striking Victorian building and then letting out the 5 floors as office accommodation.

It was appreciated by HKRUK that their development of the upper floors would interfere with the light enjoyed by the Defendant’s building. The previous owner had already raised this with the Defendant and further discussions between surveyors took place during 2008 but nothing was agreed. In September 2008, HKRUK offered the Defendant compensation of some £20,000 plus costs but this was unacceptable and solicitors for the Defendant then wrote in November 2008 seeking an undertaking that the development would not interfere with the Defendant’s right to light.

HKRUK had decided to proceed with the development whilst negotiations continued. It clearly anticipated reaching some agreement with the Defendant and works in relation to the construction of the upper floors had commenced in September 2008 and were well under way by the time the Defendant’s solicitors came on the scene.

Correspondence between solicitors continued from November 2008 until February 2009 with the Defendant taking no steps to seek an injunction to prevent the works proceeding. The works were completed by July 2009 with the total cost of the project coming to nearly £36 million, including the acquisition and finance costs.

HKRUK let the 7th floor to accountants from 1 August 2009 but, so as to enable other lettings to proceed, commenced these proceedings in August 2009 to obtain confirmation that the Defendant’s only remedy was damages and it could not require any changes to the development to prevent any continuing interference with its light. In the proceedings, it was estimated that any required alterations would cost between £1 million-2.5 million and would involve the occupiers of the 7th floor having to vacate.

In the case of Regan –v-Paul Properties (2007), the Court had made it clear that an Injunction to require demolition or alterations to a building could be awarded even if the adjoining owner had not sought any injunction to restrain interference with its right to light whilst works proceeded. That case involved a domestic property and HKRUK argued that interference with light to a commercial property was not so serious and, in its estimation, the interference was very small as it related to less than 1% of the total square footage of the Defendant’s building.

Case law has established that the burden is on the developer to establish an injunction should not be granted to restrain interference with a neighbouring property. It can do so if it can establish that any injury caused is small, that any compensation can be clearly estimated, that a small payment would adequately compensate the injured party, and that it would be oppressive for an injunction to be granted.

Unfortunately for HKRUK, the Court held that neither the injury was, nor the amount of any compensatory payment instead of an injunction would be, small. There would be some substantial interference to the light enjoyed to some important areas of the Defendant’s building, such as a Board Room, and it estimated the amount that HKRUK would have had to have paid to buy out the Defendant’s rights at £225,000.

So far as oppression was concerned, although the Defendant had delayed in taking any action and the affect of an injunction would be very costly for HKRUK, the Court took account of the fact it had proceeded knowing that it was infringing the Defendant’s rights and, accordingly, at its own risk. It thought it would be wholly wrong for it to compel the Defendant to accept damages which he did not want in relation to a building he had invested heavily in.

Accordingly, HKRUK now has to carry out major alterations or reach some agreement with the Defendant which would now involve a very substantial payment indeed.