Interest from landlords and developers in airspace and rooftop development has increased in recent years. The concept is attractive due to its ability to maximise development from an existing building and produce additional income or profit. This is particularly appealing in areas where there is a shortage of housing stock, such as London.
Not all buildings will be suitable for rooftop development and it is essential that due diligence is carried out beforehand to identify any potential issues. Each project should be assessed on its own merits - just because one building may be suitable for rooftop development, it does not mean that other similar buildings will be.
There are a number of factors which should be considered, including practical considerations as to the build, financing, planning and legal matters.
My colleague, Rose Losardo, previously wrote of the dilemma faced by landlords in relation to tenant requests to carry out prohibited alterations where there are mutually enforceable covenants in leases in her article "The dangers of a "dog in a manger" attitude - is there any merit in crying wolf?".
The principles applied in the Supreme Court judgment in the case of Duval v 11-13 Randolph Crescent Limited give those considering rooftop development further food for thought, particularly where the landlord intends to grant a lease to the developer for the rooftop development.
Duval set a precedent that where there is an absolute covenant against a tenant's alterations in a lease, coupled with a landlord's covenant to keep the leases in a building in similar form and to enforce the tenants' covenants in those leases, a landlord cannot grant a licence to a tenant to undertake works which (without the licence) would have amounted to a breach of covenant.
It is commonplace for the above clauses to feature in the leases of a block of flats. Therefore, if the airspace lease to the developer must be granted on similar terms to the flat leases, and the flat leases contain an absolute prohibition against structural alterations, then the airspace lease must contain the same provision. This will clearly prevent the developer from carrying out the development in the manner it intends. However, should the landlord grant the lease permitting the structural alterations required to give effect to the development, then it will be in breach of its covenants with the existing lessees since it will no longer be able to comply with a tenant's request to enforce under the mutual enforcement clause.
The landlord risks a claim from the existing lessees for breach of covenant and damages. This could be on the basis of a loss of value to their own properties, or the sum which it could command for waiving its right to benefit from the covenants under its lease. Further, the developer risks being on the receiving end of an injunction preventing the works.
As a practical solution, in a small block, the landlord could seek to establish that there is no objection from individual lessees and obtain written consent to the grant of the airspace lease or alternatively the landlord could carry out the works itself, avoiding the need to grant an airspace lease.
To avoid falling foul of Duval and the existing lease covenants, the leases should be considered at an early stage to identify any potential issues.
For further reading on airspace development issues, why not read the BuildingUp series by my colleague, Shreena Avery.
Should you have any queries regarding rooftop development or breaches of leasehold covenants, please contact our Real Estate Disputes Team.
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