Having spent months searching, you have now found a site which, if it had planning permission, you think would perfect for development. You negotiate very hard with the seller of the land and agree a price. You instruct solicitors who suggest entering into an option agreement to give you the option to buy the site, or a conditional contract committing the seller to sell you the land if you obtain planning permission. Great – you think you are well on your way.
Planning Matters
Your architect produces the plans. You eventually get planning permission despite a number of objections from neighbours in the vicinity. You complete your conditional purchase, enter into a building contract with a contractor and a date is set for works to commence. Out of the blue you are notified that the neighbours have issued court proceedings to challenge the planning permission; known as a judicial review.
Judicial review is a way of challenging the decisions of public bodies. It is not a consideration of the merits of the decision but a process during which a judge considers whether the law has been correctly followed. The main grounds for judicial review are:
- Illegality – where the public body has acted outside its powers.
- Procedural unfairness – where the public body has acted unfairly
- Irrationality and proportionality – the test is whether the decision is so outrageous in its defiance of logic or accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it.
If a judicial review claim is successful, the usual result is that the decision is quashed and has to be taken again. It is possible that the same decision might be reached. There is a strict 6 week time limit in planning matters to bring judicial review proceedings. In other cases the time limit is 3 months from the date of the decision.
How could this have happened? You thought that when the local planning authority made their decision that was it. The neighbours had had ample opportunity to express their concerns and had done so as part of the planning process which was well known to the local authority when making its decision. The local authority could not have made a mistake could they? No one told you that planning permissions, when granted, could be challenged.
You may have a claim against your solicitor if they failed to advise you on the vulnerability of the planning permission to judicial review. However, claims against solicitors are not easy. Solicitors owe duties to their clients but the scope not only depends upon what the solicitor is instructed to do, but also upon the characteristics of the client (Pickersgill v Riley [2004]) and the legal obscurities of the transaction. Solicitors are obliged to provide legal advice but, whilst they are not obliged to provide commercial advice or advice on the wisdom of a transaction (Reeves v Things & Long [1996], they are obliged to draw attention to any hidden pitfalls (Clarke v Iliffes Booth Bennett [2004]). In Stoll, Atkins and Brambleridge Mansions Ltd v Wacks Caller [2009] the court found that the solicitor acting on a purchase of land might be negligent if he failed to include in a conditional contract a ‘call in’ clause by which his client could withdraw from the purchase in the event of a judicial review of the planning permission.
Even if you are able to demonstrate that the solicitors breached their duty of care, you then need to show that the breach caused the loss and that you took reasonable steps to mitigate your loss. In other words, you need to deal with the situation in which you find yourself. You would be mistaken if you thought your solicitor would help guide you through the judicial review; your solicitor would be unable to act leaving you all alone having to fend for yourself or paying for a new solicitor.
You are now in a situation where you have a start date for your contractors who will probably have a claim against you under the building contract for loss and expense if the works are delayed. You have borrowed heavily to fund the project which is costing you significant sums in interest payments. If you go ahead with your development you face the prospect of an application for an injunction to restrain you from undertaking your works whilst the judicial review goes through the court process. If you chose to complete your development (and if you were not restrained from doing so), you might end up facing an enforcement notice from the planning authority or an injunction requiring you to reinstate the site to its former condition if the judicial review were successful. Not only would you have paid to complete the development, but you would then have to pay to restore the site to its former condition.
Even if you successfully traverse the planning minefield and obtain a planning permission that you can implement, your troubles are unlikely to be over. You may then need to face the very neighbours who were so against the development, especially if the boundary between two properties is not clear, which could give rise to a boundary dispute, or where your development might interfere with your neighbours’ rights of light, where the site has restrictive covenants, or your works engage the Party Wall etc Act 1996 (“the Party Wall Act”).
The Party Wall Act
The Party Wall Act applies where works are proposed to any structure separating buildings or parts of buildings, boundary walls and excavations near neighbouring buildings. Its purpose is to give a building owner a statutory right to carry out works which would otherwise be a nuisance or constitute trespass and to have access over a neighbour’s property to carry out the work thereby avoiding the need for an access order under the Access to Neighbouring Land Act 1992. It also sets out, via a tribunal of surveyors, a simple means of dispute resolution without court involvement via the making of what is called a Party Wall Award. Whilst the purpose of the Party Wall Act is to enable works to be undertaken and provide a quick and effective means of resolving disputes, it does give significant rights to neighbours. These rights, especially to the obstructive neighbour, can often hinder what ought otherwise to be a straightforward development and radically increase the cost of the development. Before embarking upon a development, it is important to understand the possible obstructions that could be faced.
The first step is to devise your construction programme and consider the various construction methods available. In some cases it may be desirable or more cost effective to use what is called special (reinforced) foundations. This is especially so in basement constructions where the use of metal reinforcement adds structural stability and strength to enable a smaller foundation to be achieved thereby maximising the subterranean usable space. However, under section 7(4) of the Party Wall Act you cannot use special foundations without your neighbour’s consent. The rationale for this is that reinforced foundations are very difficult to remove or alter, require specialist and expensive techniques to remove and might cause the neighbour difficulties if he wished to do work to the party wall in the future. The prohibition has its roots in history when special foundations were a new feature of the construction industry.
The issue of special foundations was considered by the court in Chaturachinda v Fairholme (2015). The unusual design there involved underpinning a party wall with reinforced concrete underpins linked to a reinforced concrete slab, which rested on mass concrete. The neighbours claimed that the design was a sham and an impermissible attempt to evade the prohibition on special foundations without consent. The court disagreed finding that the reinforced underpinning was not a special foundation because it was not the foundation and did not transfer load to the neighbour’s land. The foundation was the mass concrete below. Therefore, just because a structure includes some reinforcement does not necessarily make it a special foundation.
If the Party Wall Act applies, you will need to appoint a party wall surveyor and serve a party wall notice upon your neighbours. Upon receipt of a party wall notice, your neighbour could provide consent in which case your works can proceed, or refuse to consent or do nothing in which case a dispute is deemed to have arisen and the dispute resolution procedure then takes effect. In certain circumstances your neighbours might be able to serve counter notices, for instance, if you are carrying out works to a party wall and your neighbour wants additional things to ensure that their use of the wall is not adversely affected, or where you have consent to special foundations the neighbour can require the foundations to be placed at a greater depth or higher strength.
The Party Wall Act gives a building owner rights to undertake what could be very extensive works to a party structure with a real risk of damage to the structure and damage to the neighbour’s property. If the building owner (especially if it were a corporate entity) were to become insolvent, the neighbour might be faced with the prospect of incomplete works to the party structure, perhaps an unstable structure, and funding the cost of completing the works from their own resources. The Party Wall Act deals with this under section 12 by enabling a neighbour to request what is called security for expenses, but the request must be made before the notifiable works commence. The form of the security to be provided may require careful thought if funds are to be held in a joint account to ensure that they do not fall within the assets available to a trustee in bankruptcy or liquidator. If a building owner fails to comply with a notice requiring security for expenses, the neighbour might have grounds to apply for an injunction to restrain the building owner from progressing works until such time as the request for security for expenses has been determined and security provided. Therefore, even before you have commenced works, your neighbour may well have caused delay in your project at the notice stage, as well as causing funds to be locked up for security for expenses which could impact upon cash flow.
Unless your neighbour consents to your works, he will probably appoint his own party wall surveyor (the cost of which you will probably have to pay) but he might agree to appoint your surveyor (known as an agreed surveyor). If your neighbour refuses to appoint a surveyor you may be able to appoint a surveyor for him. If each party appoints his own surveyor, the two surveyors will select an independent third surveyor whose role will be to determine matters that are referred to them by the other surveyors.
Assuming that your neighbour does not consent to your works, the surveyors will need to make a Party Wall Award which sets out rights, obligations and provisions that the surveyors consider necessary to enable the works to proceed. Often an Award will refer to plans and specifications accompanying the Award. Often there will be a schedule of condition of the neighbour’s property so that when the works have been completed an assessment can be made of any damage to the neighbour’s property. During the course of the works other Awards may be required to deal with particular disputes that arise during the works. Party Wall Awards are binding upon the parties, however, section 10(17) of the Party Wall Act provides that either party may, within 14 days from the date on which the Award was served, appeal the Award to the County Court.
The process to obtain a Party Wall Award to enable you to be able to undertake your works can be time consuming. However, it is an important and necessary step. If you were to proceed with your works or threaten to do so without complying with the provisions of the Party Wall Act you might be committing a trespass or nuisance and you might be faced with an application by your neighbours for an interim injunction to restrain your works pending compliance with the Party Wall Act. The courts tend to have great sympathy for complaints made by neighbours where building owners do not comply with their statutory obligations under the Party Wall Act. In Uddal v Dutton [2007] the court granted an injunction against the building owner to restrain further demolition of the party wall and compelling the defendant to secure the boundary.
There are risks for a neighbour who chooses to apply for and obtains an injunction, especially in a larger construction project involving both notifiable works and works that fall outside the Party Wall Act and where the cost of delay is significant. The works might not be subject to the Act or might not amount to a trespass or nuisance in which case the neighbour might not succeed and would probably end up having to pay the developer’s legal costs. If the court grants an interim injunction it will generally require the neighbour to undertake to pay compensation to the developer for any loss or damage that might be caused by the interim injunction (known as the cross undertaking in damages). Delay part way through a building project can be very expensive for the developer and the financial risks for the neighbour are significant.
Not only must you comply with your obligations under the Party Wall Act, serve notices and where necessary obtain a Party Wall Award, but you must also comply with the terms of the Award, otherwise you might again be faced with an application by your neighbours for an injunction. This occurred in Chliafchtein v Wainbridge Estates Belgravia Limited [2015] where the claimant obtained an injunction preventing the defendant developer from carrying out excavations close to the party wall otherwise than in accordance with a method statement forming part of the Party Wall Award. The project in this case is perhaps an example of the difficulties a developer can face in a construction project. The development did not even involve a party wall since both properties had independent flank walls on their side of the boundary. The Party Wall Act was engaged because the depth of excavation required notices to be served under section 6 of the Act. In addition to the injunction at an early stage in the development, there were no less than 8 Party Wall Awards in the development, many of which were the subject of appeals to the County Court at Central London, and there was a claim against the party wall surveyor reported at Chliafchtein v Donald Jessop [2015]. The injunction and appeals no doubt had a serious impact upon the development in terms of delay and cost.
So, after complying with your obligations under the Party Wall Act you are now in a position to commence your works. However, you should not assume that it will be plain sailing from then on. Aside from the difficulties you might face with your contractor which are outside the scope of this article, you may continue to face opposition from your neighbour, the need for multiple Party Wall Awards to deal with particular aspects and the need or possibility of appeals to the County Court in respect of Awards that are made.
At some stage you will complete your development, however, you may then be faced with a claim from your neighbour for any damage caused to their property as a result of your works. Under section 7(2) you will be required to compensate any neighbour for any loss or damage which may result by reason of any work executed pursuant to the Party Wall Act. The scope of damage would therefore appear very wide and would appear to encompass any form of loss suffered by the neighbour. Loss might include the cost of repairs, professional fees, alternative accommodation, but it might also include diminution in value of the neighbour’s property, loss of amenity that the neighbour may have suffered and, possibly business interruption or loss of earnings if, for instance, the neighbour worked from home. The assessment of damage, including the principles to be applied, is often a source of disagreement between the parties and their surveyors.
The decision in Lea Valley Developments Limited v Derbyshire [2017], decided 20 years after the Party Wall Act came into force, was the first authority on the issue and which decided that common law principles which apply to the assessment of damages for torts to land should apply to the assessment of loss under section 7(2). In that case the works were undertaken in accordance with a Party Wall Award which provided for the building owner to make good all damage to the neighbour’s property. The works caused significant damaged to the neighbour’s property with the result that it was common ground that the property would need to be demolished and rebuilt. The cost of demolishing and rebuilding the property (arguably in accordance with the award) were estimated to be between £1 million and £2 million. However, the expert evidence was that the diminution in value of the property as a result of the damage (a different way to assess loss) would be much lower, between £0.5 million and £1 million. What is reasonable in any particular case depends on the facts and circumstances and in some cases diminution in value will be the correct measure of loss, however, in other cases the cost of reinstatement may be the correct measure.
In Welter v McKeeve [2018], the building owner built a basement and the adjoining owner later built their own basement making use of the underpinning constructed by the building owner. However, it transpired that the underpinning was found to be poor and in need of remedial work. The adjoining owner’s contractor, who was on site undertaking the adjoining owner’s development charged the adjoining owner for the remedial works which they sought to recover from the building owner. The building owner felt that costs paid to the contractor were excessive and expert evidence from quantity surveyors put the true cost at about a third of that which the adjoining owner’s contractor charged. The court found that the adjoining owner was under a duty to mitigate their loss since common law principles apply to the assessment of loss, that the adjoining owner had failed to mitigate their loss and awarded them the lower figure determined by the expert quantity surveyors. There remains a degree of uncertainty as to the nature and extent of the duty upon an adjoining owner to mitigate loss since the court found that it was reasonable for the adjoining owner to engage the incumbent contractor. However, if the incumbent contractor would not have been willing to have done the works at the figure given by the expert quantity surveyors (which seems apparent from the judgment), what was the adjoining owner to do.
Even when you have completed your development and paid your neighbours compensation, the matter may not be over. You may then have to deal with party wall surveyor costs. As the building owner you will probably have been required to pay not only your own surveyor’s costs but the reasonable costs incurred by your neighbour with his party wall surveyor, perhaps on an hourly rate basis in respect of some of the work, and payment of these costs will probably have featured in a Party Wall Award. If you wish to challenge either your liability for costs or the amount, it is important that you appeal the Party Wall Award within the strict 14 day time limit. In R on the application of Farrs Lane Developments Ltd v Bristol Magistrates Court [2016] a party wall surveyor applied to the Magistrates Court to enforce cost awards in Party Wall Awards against the developer as a civil debt. The developer challenged the proceedings because the surveyor’s fees were not in issue between the owners. The court found that where an award directed a party to pay the surveyor’s fees, the surveyor was entitled to enforce the order directly against the paying party.
Conclusion
Whereas the vast majority of developments proceed smoothly and without complication, there are many things that can go wrong and it is important that you have a proper understanding and take advice where necessary to minimise the risk of unforeseen problems arising.
CBG Law’s Property department are regularly instructed by property developers in connection with the purchase and sale of development properties. CBG Law’s Property Litigation team are regularly instructed by developers and adjoining owners in respect of construction projects and can provide specialist advice on boundary disputes, rights of light matters, party wall disputes, construction adjudications and arbitrations and professional negligence claims. The team include lawyers who have been involved in some of the cases cited in this article.
This article was written by John Turner, a partner within the Property Litigation department.
Contact
For more information about how we can help you in relation to the acquisition of development properties please contact Sammi Hsu on 020 7462 6029. For more information about how we can help you in relation to property disputes please contact John Turner on 020 7462 6029 or Mark Brassey on 020 7462 6027.
