The Mayor of London’s draft London Plan of 2018 set out ambitious plans for the construction of 65,000 homes per year across the capital, with a reduction on the density cap within land use.
This has significantly opened up the market for development on top of existing buildings, colloquially known as ‘airspace development’. Early estimates envisage that 40,000 new homes could be built by merely utilising the roofs of and airspace above buildings. There are a number of legal and practical challenges that need to be overcome before the airspace can fulfil its potential. Developers should consider the following issues:
Tenants’ Rights of First Refusal
The tenants of a building may have the right of first refusal to purchase a new leasehold interest in the building. If this right of first refusal applies, the landlord must serve on the tenants notice offering the tenants the right to purchase the airspace lease at the agreed price. This has two impacts on the potential development:
- From time-to-time tenants do exercise their right to purchase the airspace lease; and
- The timescale within which the tenants have to respond to the right of first refusal is two months, which can significantly delay the expeditious developer.
What Do the Existing Leases of the Building Say?
For example:
- The extent of a tenant’s demise can be interpreted to include the roof space;
- The roof space may be granted as a common area for the tenants;
- Leases may contain nuisance clauses that airspace development may trigger; and
- Some leases will include clauses that require the landlord to grant any new leases in substantially similar form as the existing leases;
- Ground floor leases of buildings have gardens or yards demised to the tenant that may require the negotiation of additional rights.
All of these issues may scupper an airspace development from the outset. Developers must establish whether there is anything in the existing leases that would have this effect.
How Much Weight Will the Building Hold?
Developers must establish whether the building is sufficiently structurally sound and strong enough to hold the potential development as, if it’s not, the project is never getting off the ground to begin with.
Rights of Light and Air
Increasing the height of a building is inevitably going to cause issues of potentially blocking the right of light to adjoining buildings or to the existing tenants of the building. It’s essential that developers take advice from a right to light surveyor to establish whether rights to light are going to be an issue for the proposed development.
How Do I Get to the Top?
The most common methods of getting to the top of a building for development are:
- Scaffolding – It’s likely that a developer will require a scaffolding licence in order to erect scaffolding on a building. Care needs to be taken to ensure that the right to erect scaffolding has been reserved by the landlord out of the leases of the building to avoid tenants suing for the removal of the scaffolding;
- Crane – A crane can be used to lift units and materials onto the roof. However, cranes also have problems:
– Due to the fact that property owners own the airspace above their buildings, it’s likely that the owner of the building over which the oversail is required will charge a premium to allow a crane to pass over.
– A developer will need a place to site the crane. It may be the case that rights can be granted out of the freehold but it is more often the case that rights need to be granted by adjoining owners (which, again, may include the payment of a premium to them) or permission from the local authority for the stopping up of a public road. - If a developer is intending to go through a building careful consideration of the existing leases will be required to ensure that the freeholder has reserved the requisite rights to allow such access through the building from the entrance to the building to the roof.
Utilities
How is the development going to be served? Roofs are often complex spaces including things like air conditioning systems, guttering and other drainage, lift mechanisms etc. Developers need to ensure that services have sufficient capacity to serve the proposed development; that sufficient rights have been reserved by the freeholder to enable connection into those services; and that a developer obtains the requisite rights to connect into those services.
The Legal Mechanism
Although a developer may not be interested in the legal mechanism involved in facilitating the build, it’s essential that a developer ensures that the mechanism being agreed by their solicitor:
- Ensures that once the development is complete and the units are sold, the management of the development is taken-on by the freeholder or their management company so that the developer has no ongoing liability after the units are sold;
- Ensures that a purchaser for a unit will be able to obtain a mortgage on the property and there’s nothing in the legal mechanism that means a bank would refuse to provide a mortgage.
It’s essential that a developer instructs a lawyer with experience of airspace development and understands the legal mechanism required to ensure that the development will be saleable following completion meaning that a developer actually sees the profit from their development.
Here at Nockolds, we are experienced in acting for freeholders in advising on the feasibility and legal mechanism of a proposed development to set everything up in readiness for sale. For developers we are experienced in ensuring a full appraisal of the potential costs and timescales as well as whether there will be a saleable property at the end of the process.