The Party Wall etc Act 1996 (“the 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.
Whilst the purpose of the Act is to enable works to be undertaken, it does give significant rights to adjoining owners including compensation rights. This is perhaps understandable since an adjoining owner cannot prevent the works being undertaken, but they face a real risk of damage being caused to their property as a result of the works. Works to, or in close proximity to, a party wall clearly have the potential to cause damage. Therefore, it would not be unreasonable for an adjoining owner to be afforded rights under the Act.
Common Law
The Act came into force on 1st July 1997. Prior to that, for properties in Inner London, the London Building Act 1930 and the London Building Acts (Amendment) Act 1939 applied. However, outside Inner London the general law on party walls was derived from section 38 of the Law of Property Act 1925. This provided each owner with the right of support from the party structure. In general, an owner could do anything they wished on their own half of the structure without reference to their neighbour/adjoining owner. If damage were caused to the adjoining owner’s property, their remedies would be at common law in nuisance, trespass and negligence.
Before returning to the compensation provisions under the Act, it is worth considering common law issues first, not least because they have relevance in respect of parts of works which do not engage the Act ,and since recent case law indicates that common law principles apply to the assessment of loss under the Act.
So far as adjacent excavation is concerned, the case of Rowbotham v Wilson (1857) provides authority that the removal of support is not actionable if equivalent support is provided. Where a retaining wall is erected, adjoining owners might acquire an easement of support for their land under the Prescription Act 1832 if the structure has been in situ for more than 20 years. As with the right of support from soil, the building owner could not remove the retaining wall without replacing it with an equivalent (see Bond v Nottingham Corporation [1940]). Interference with an easement or right of support gives rise to an action in nuisance if the building owner’s actions cause a substantial and unreasonable interference with the land or the adjoining owner’s use or enjoyment of the land.
The case of Leakey v National Trust [1980] provides authority that the occupier of land owes a duty of care to the owner or occupier of adjoining land in relation to hazards occurring on that person’s land. The judge in Bond v Nottingham Corporation [1940] stated that:
“the duty is a duty to do that which is reasonable in all the circumstances, and no more than what, if anything, is reasonable, to prevent or minimise the known risk of damage or injury to one’s neighbour or to his property.”
The case of Holbeck Hall Hotel Ltd v Scarborough Borough Council [2000] provide that a landowner could be liable in negligence for his failure to take positive steps to maintain the support. In Ward v Coope [2015], which concerned a boundary wall, the Court of Appeal held that each landowner owed the other a measured duty of care. In other words, what is required to remove or reduce the risks depends upon what is reasonable in the individual parties’ circumstances.
In essence adjoining owners affected by a building owner’s works may have recourse under common law in claims for nuisance and negligence and also trespass if the building owner trespasses onto the adjoining owner’s land. The test in these common law claims revolves around the concept of reasonableness in the particular circumstances, both for the building owner as well as the adjoining owner.
Section 7 of the Act
Where works are being carried out under the Act, section 7 provides an adjoining owner with a statutory remedy:
“(1) A building owner shall not exercise any right conferred upon him by this Act in such a manner or at such a time as to cause unnecessary inconvenience to any adjoining owner or to any adjoining occupier.
(2) The building owner shall compensate an adjoining owner and any adjoining occupier for any loss or damage which may result to any of them by reason of any work executed in pursuance of this Act.”
It is noteworthy that section 7(1) requires a building owner to carry out his works in a way that does not cause unnecessary inconvenience to adjoining owners. This gives rise to the obvious question whether, if works could be carried out in a different way that would cause less inconvenience to the adjoining owner, the building owner is required to adopt a different method to comply with their statutory duty not to cause unnecessary inconvenience. Parliament seem to have used the word unnecessary, rather than unreasonable, presumably for very good reasons. If, for instance, the works were not governed by the Act, the building owner would only have a liability in nuisance if the works caused a substantial and unreasonable interference with the land. However, theoretically, it is possible for works to be carried out reasonably but still cause unnecessary inconvenience.
The issue was considered in Gray v Elite Town Management Limited [2016]. Mr Gray had previously created a basement by excavating the subsoil beneath the ground floor and installing rows of contiguous piles around the four sides of the newly created space. The piles stood just inside the party wall with Elite’s property. Subsequently, Elite decided to undertake a basement extension of its own. Whilst there were complications along the way, Elite’s design would ultimately involve underpinning the party wall with mass fill concrete. However, Mr Gray believed that the best and least disruptive course would be for Elite to install contiguous piles in the same way as he had installed for the purposes of his basement. Mr Gray set out several other alternative schemes that would have been acceptable to him and which he claimed would cause him less inconvenience. The third surveyor made an award permitting Elite’s works (in mass concrete). Mr Gray appealed to the County Court on the basis that the third surveyor ought to have approved an alternative scheme having regard to Elite’s statutory obligation not to cause unnecessary inconvenience under section 7(1) of the Act. The County Court upheld the award finding in favour of Elite, and Mr Gray appealed to the Court of Appeal.
The Court of Appeal held that there was no duty on the surveyors to approve a design which caused the minimum of inconvenience. When making an award the surveyors had to have due regard to both the building owner and the adjoining owner, however, they did not assume a design obligation to the adjoining owner. The duty under section 7(1) of the Act concerned the conduct of the works that had been designed by others; it was not the surveyor’s role to approve an alternative design which might have resulted in a lesser degree of inconvenience.
Section 7(2) of the Act provides that the building owner shall compensate an adjoining owner and adjoining occupier (i.e. not just the adjoining owner) for any loss or damage “which may result” by reason of any work executed in pursuance of the Act. The definition would therefore seem very wide and could cover any form of loss. 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 adjoining owner wants to be fully compensated for the losses they believe they have suffered as a result of the works (which they probably did not even want) but the building owner wishes to limit their outlay, especially at the end of what may have been an expensive project where funds may be tight.
The concern for the building owner is often that they will be paying for the complete redecoration or refurbishment of the adjoining owner’s property:
- In some cases, for instance, where the adjoining owner has recently renovated their property, this may be considered fair, especially if the damage is extensive.
- In other cases, where the adjoining owner’s property has not been decorated for perhaps several decades, and it would be reasonable to suppose that the adjoining owner would renovate or redecorated soon anyhow, it might not be considered fair.
- Where the damage is limited to particular rooms, is it necessary to repair the entirety of the room, or should repairs be more limited? For instance, it may be that the works caused superficial cracking on one wall of a room which requires redecoration, but the other walls are fine. The building owner may say that only the wall in question requires repair. The adjoining owner may say that the whole room needs to be redecorated.
- Damage to wooden flooring is a similar problem where isolated damage might in some cases be capable of repair but in other cases the entire floor might require replacement.
- Clearly, it would not be reasonable for the building owner to have to fund a state of the art bespoke kitchen to replace a dated flat pack. However, adjoining owners may not keep receipts showing the original cost. What about a situation where the adjoining owner originally had a bespoke expensive kitchen installed 20 years ago? Should the building owner have to pay for a new similar quality kitchen? The adjoining owner might have been intending to replace his kitchen anyhow and stands to benefit significantly if the building owner has to cover the cost. Why should the building owner have to pay for a new kitchen when the adjoining owner was going to replace it anyhow? On the other hand, if the adjoining owner was not going to replace the kitchen, why should he have a damaged kitchen?
The concept of betterment applies; namely whether the adjoining owner would or should be placed in a better position than he would have been but for the works and how this should feature in the assessment. Often a pragmatic approach will be taken looking at what would be reasonable in individual circumstances and taking into account say the usual lifespan of things that have broken and the standard periods of redecoration, and then undertaking a discounting exercise. However, what is standard is subjective and objectively reasonable approaches can lead to perceived unfair results. It is a balancing exercise.
Another important issue that often arises is whether an adjoining owner should move into temporary alternative accommodation whilst their property is repaired and, if so, what sort of alternative accommodation would it be reasonable for the building owner to fund? Clearly, where the repair works are minor, temporary relocation will not be warranted, and where the repair works are substantial, relocation may be warranted. Much may depend upon the extent of the damage caused and the repairs that are necessary and much may also depend upon the characteristics of the adjoining owner, such as age and ill health. However, where temporary accommodation is necessary, what would be reasonable for a building owner to fund? Should the building owner have to fund hotel accommodation, or short, or longer term accommodation? Rarely will hotel accommodation provide similar living conditions (such as a garden) but often it will come with housekeeping services and possibly meals.
Do common law principles apply to the assessment of compensation under section 7?
The difficult legal issues that often arise when considering claims for compensation are:
- Causation - did the works cause the loss complained of? There may be other possible causes of the damage complained of such as, for example, where the adjoining owner had works of his own undertaken which may have caused or contributed to the damage. Where there are other possible causes should there be an apportionment?
- Remoteness of damage – even if the loss was caused by the building owner’s works, is the loss of a type that is recoverable or is the loss too remote from the breach? In contract law, the loss will only be recoverable if it was in the contemplation of the parties and the loss was reasonably foreseeable. In tort, the loss will only be recoverable if it was reasonably foreseeable at the time of the breach of duty.
- Mitigation of loss – could or should the adjoining owner have done something to minimise the loss he suffered?
These are common law principles which apply in different ways to different types of claims. However, compensation claims under the Act relate to a breach of statutory duty. Should, therefore, the common law principles apply to a claim under the Act?
The decision in Lea Valley Developments Limited v Derbyshire [2017], decided 20 years after the Act came into force, was the first authority on the issue of the assessment of damage under section 7(2) of the Act. In this case the works were undertaken in accordance with an award. However, the works caused significant damage to the neighbour’s property such that the property would need to be demolished and rebuilt. The cost of demolishing and rebuilding the property were estimated to be between £1.05 million and £1.95 million. However, the expert evidence was that the diminution in value of the property as a result of the damage would be much lower, between £0.48 million and £1 million. Should, therefore, the adjoining owner receive compensation to reflect the cost of demolishing and rebuilding the property or should they receive compensation to reflect the diminution in value of their land as a result of the damage? The court did not determine the issue of what the adjoining owner should recover; it held that that was a matter for the surveyors to determine. However, it did decide 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). The case involved technical issues about provisions of an award, the ability of the court to grant declarations in respect of matters that fell within the surveyor’s jurisdiction and technical issues of a procedural nature. However, the key issue was the basis upon which damages should be assessed.
Therefore, the basic principle is that damages should be an amount which would, so far as money could, place the adjoining owner in the same position as they would have been had the tort not occurred. The amount must be reasonable having regard to the position of both parties. In other words, causation, remoteness and mitigation are relevant factors to be considered in the assessment of loss under section 7(2).
What is reasonable in any particular case depends on the facts and circumstances. In some cases, diminution in value might be the correct measure of loss, however, in others the cost of reinstatement might be the correct measure. Much may depend upon the adjoining owner’s use of, and intention for, the property. If it was their home then rebuilding and reinstating the property might be the correct measure of loss. If it was an investment property then the correct measure of loss might be diminution in value, i.e. the difference between what it was worth before the damage occurred, and what it was worth with the damage, on the basis that the adjoining owner could acquire another investment property. However, even if diminution in value were the correct measure, other losses would need to be taken into account such as the cost of sale and purchase (including stamp duty) and loss of rental income.
Whilst the decision in Lea Valley clarifies that common law principles do apply, there remains much scope for argument about how the common law principles should apply in any particular case. A particularly difficult area concerns the principle of mitigation of loss and the steps that an adjoining owner needs to take to ensure that their compensation is not reduced. Where damage has been caused to an adjoining owner’s property, ought they to use their own known and trusted contractors to repair the damage or must they shop around for the cheapest contractor?
Mitigation of Loss
The common law principle of mitigation provides that an injured party cannot recover damages for any part of their loss that they could have avoided if they had taken reasonable steps. An injured party must take reasonable steps to minimise their loss and they must not take unreasonable steps to increase their loss. It is often said to be a duty to mitigate, however, it is not an enforceable obligation but a recognition that if the injured party fails to do something that they ought to have done, their damages will be affected by the failure.
The common law duty to mitigate is often said not to be a demanding or onerous obligation. As Lord Macmillan said in Banco de Portugal v Waterlow and Sons Limited [1932] “It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who have created the emergency.” The injured party is only required to act reasonably in all the circumstances. For example, case law indicates that the injured party need not risk his money or his reputation or embark upon costly and uncertain litigation himself to mitigate his loss. An injured party does not fail to mitigate his loss if they act in the ordinary way that people act.
The person who caused the loss has the burden of proving that the injured party failed to take all reasonable steps to minimise or avert his loss and it is often considered to be a difficult task. In Lombard North Central PLC v Automobile World (UK) Ltd [2010], Lombard supplied a rare vehicle to Automobile World under a hire purchase agreement for £194,000 which it repossessed upon Automobile defaulting under the terms of the finance agreement. Lombard subsequently sold the vehicle for £59,900 and claimed the shortfall from Automobile World who defended the claim arguing that Lombard had failed to mitigate its losses. Automobile World argued that Lombard ought to have sold the vehicle through specialist dealers and allowed sufficient time for the right buyer to emerge. However, Automobile did not adduce expert evidence as to the actual value of the vehicle. Both the High Court and the Court of Appeal had concerns about whether Lombard had taken reasonable steps to mitigate its loss, however, they found that Automobile had not satisfied the burden of proof.
Not only is the burden upon the person who caused the loss to prove that the injured party failed to take reasonable steps, but it must show that a more favourable position would have been achieved had the steps been taken. In Standard Chartered Bank v Pakistan National Shipping Corporation [2001] Lord Justice Potter stated: “If an issue is raised by the defendant that the price received was diminished by reason of the claimant's failure to take reasonable steps in negotiating the sale, or by effecting an alternative sale at a higher price, so that the loss suffered (or part of it) is attributable to such failure rather than to the original fraud, then the burden of that issue lies upon the defendant. That being so, it is part of that burden not merely to show that the plaintiff failed in some respect to act reasonably, but that his failure did in fact lead to a diminution in the price he could have obtained had reasonable steps been taken”
There remains a degree of uncertainty as to how the principle of mitigation of loss will be applied in compensation claims under the Act in respect of complicated construction works. If, for example, two neighbours were to undertake sequential extensions and if, in the later one (the adjoining owner), it were found that the earlier extension (by the building owner) was defective thereby necessitating extensive remedial works, what duty would be upon the adjoining owner who has a contractor already on site? The adjoining owner’s works would almost certainly be delayed and the adjoining owner would be subject to loss and expense claims by the incumbent contractor.
It would seem reasonable for the adjoining owner to engage the incumbent contractor to undertake the remedial works also, and perhaps try and reach an accommodation with the contractor regarding the overall project. The alternative might be to spend time and incur costs locating new contractors who might be able to undertake the works and then have 2 teams on site. However, it might be very difficult to locate new contractors to deal with part of an existing site and such an option may not be on the table. Even if it were possible to locate different contractors, it might result in two sets of overhead costs and an even greater delay to the original works thereby increasing the adjoining owner’s liability for the incumbent contractor’s loss and expense.
Faced with the difficulties engaging a new team, the obvious solution would seem to be to engage the incumbent contractor and, in practice, the adjoining owner may have little choice. However, the incumbent contractor may well know this and may charge a premium to add the remedial works to the project. Is it reasonable for the adjoining owner to pay what the incumbent contractor wants or is the adjoining owner under a duty to negotiate with the incumbent contractor? What if the incumbent contractor refuses to negotiate? Would it be reasonable for an adjoining owner to proceed with the incumbent contractor and claim the cost from the building owner? Or should the adjoining owner take steps to engage a different contractor and seek the increased costs (which might exceed the incumbent contractor’s premium) or would he be criticised for doing that?
The case law indicates that an adjoining owner only needs to act reasonably. The question is not whether work could have been done more cheaply or loss avoided, but whether an adjoining owner has acted reasonably in all the circumstances. The burden is upon the building owner to show what the adjoining owner ought to have done and what difference that would have made. However, it would seem prudent for an adjoining owner to carry out investigations to see what options exist, the cost of each option, and engage constructively with the building owner. As long as the adjoining owner can show that they acted reasonably, they should not be open to an allegation of a failure to mitigate. Even if they were, demonstrating a methodical approach ought to assist in a contention that they acted reasonably.
Conclusion
Claims for compensation in party wall matters are important but one of the most contentious aspects that party wall surveyors have to deal with. Legally they are very complicated, especially in light of the evolving case law. There must be a balance between the interests of the building owner, who has been able to undertake their works, and the adjoining owner who has probably suffered greatly as a result of the works. Not only are there obligations upon the building owner not to carry out their works in a way that causes unnecessary inconvenience to adjoining owners, and to compensate an adjoining owner, but there are obligations upon adjoining owners wishing to claim compensation to take steps to mitigate their losses.
Key Contacts
If you are considering carrying out building works to your property, or if your neighbour is about to commence works which will affect you and you have been served with a notice under the Party Wall etc Act 1996, our experienced team can help you through all stages of the process.
For more information about how we can help you in relation to property disputes or for advice on the Party Wall etc Act 1996 please contact John Turner on 020 7462 6029 or Mark Brassey on 020 7462 6027.
