New hotel developments in congested prime locations can inevitably end up disrupting rights of light enjoyed by neighbouring premises. This is often a headache on such projects because obtaining the necessary releases can be time consuming and expensive. If rights of light issues are not satisfactorily dealt with this will often be an issue for funders, and insurance as a mitigation option can be expensive. Moreover, insurance in such circumstances is not always adequate – it will not always cover the consequences of injunctive relief disrupting trade, resulting in loss of profit and requiring major and unprofitable modifications to be made to the original design.
Section 237 of the Town and Country Planning Act 1990 is an often overlooked but useful tool for extinguishing rights of light. It can be used where property is being purchased or leased by a developer from a local authority. It applies where:
- land has been acquired or appropriated by a local authority for planning purposes;
- that land buildings or work are erected, constructed, carried out or maintained; and
- the building work is done in accordance with planning permission.
We recently had to grapple with a s237 scenario where we were acting for a hotel tenant entering into an agreement for lease with a developer/investor who was being granted a long lease by the Council to develop and let a former car park site. One of the questions we needed to address was what was meant by “appropriated” for planning purposes and if the Council had in fact done this.
The beauty of s237 is that it has been widely interpreted by the judiciary. It has been established that the purpose of s237 is to permit a local authority to develop its land in the manner in which it considers will best serve the public interest. Local authorities therefore have been given the right to interfere with third party rights provided they do so in accordance with planning permission (with the protection inherent in the planning process) and affected third parties are compensated.
A Council therefore can apply s237 in a relatively informal manner. Ideally acting for a developer or tenant you would like to see a resolution from the Council expressly stating that it has “appropriated” a property under s237, but this can often be established by looking at Council cabinet minutes and correspondence with its advisers and discussions that have taken place at the Council about the property, any master plan and the regeneration of the area in which the property is located.
Despite being a wide power, you should be mindful that steps taken under s237 can be open to a judicial review challenge which can take a frustratingly long period of time to see off. Also, as has been hinted above, s237 does not completely take away an affected third party’s rights. While the threat of an injunction is removed, an affected third party will have the right to claim compensation against the subsequent developer owner or its successors and lessees (although such compensation will be assessed on the less generous basis set out in the Compulsory Purchase Code rather than using common law principles and referring to a percentage of development profit). The Council would also retain a contingent liability. A Council exercising s237 rights before a development disposal will therefore require any developer to indemnify it for its contingent liability, and normally a developer would take out indemnity insurance to cover this and also any damages it may have to be pay to an aggrieved third party.
Nevertheless, s237 remains a neat tool to prevent developments from becoming unduly delayed while releases are negotiated with third parties and offer developers the comfort they need about the potential consequences of any rights of light breach.
