Rooftop development: moving on up

At UKREiiF, one of the takeaway themes was the role that rooftop development can play, particularly in high-density urban environments where land ripe for development is at a premium. Often a rooftop development can be used as an opportunity to unlock value as part of a wider retrofit intent on improving the environmental performance of a building or for the provision of affordable housing. There are numerous technical and legal issues that may arise as part of a rooftop development. The technical considerations (notably looking at whether the existing structure can support a rooftop development) are of great importance but outside the scope of this article. This article is intended as an overview of some of the legal issues that may arise as part of such a development.

Ownership of the airspace

It might sound obvious, but an important point to check at the outset is the ownership of the airspace within which the rooftop development will be undertaken.  If there are leasehold interests that will subsist whilst the development is undertaken, the leases will need to be reviewed to ensure that the roof and airspace have been excluded from the demises (taking particular care to look at leases of the top floor).  If a developer builds into airspace that does not form part of its ownership, a trespass will have been committed.

Third party rights

Rooftops are a prime location for the installation of telecoms equipment and plant that service occupational tenants.  Unless cleverly incorporated as part of the design, any such plant will need to be relocated.  The documentation (occupational leases, telecoms code agreements) will need to be carefully checked to establish whether relocation is possible.

It is also possible that adding additional floors to a building may interfere with rights of light enjoyed by adjoining or nearby buildings.  A survey should be undertaken at an early stage to establish whether this may be an issue, and a strategy agreed as to how best to deal with any potential interference with rights of light.

Covenants restricting development

Lease covenants need to be checked to see whether they may restrict a rooftop development.  For example, a quiet enjoyment covenant in a lease has the potential to prevent rooftop development that would disturb the ongoing occupational use.  There are steps that a developer could take to mitigate the risk of such a covenant being enforced, like engaging with occupational tenants at an early (pre-development) stage and undertaking methods of construction likely to minimise any impact of the development.  It’s important to note that a right to quiet enjoyment goes beyond a right not to be disturbed by noise, for example, it has been argued successfully that loss of light to a roof terrace could amount to a breach of a quiet enjoyment clause.

Conversely, a lease may contain helpful provisions that permit a landlord undertaking a rooftop development.  Such provisions need to be read in the context of the lease as a whole but could help where a tenant claims breach of the quiet enjoyment covenant.

It is also important to consider whether increasing the size of the building could have an impact on other lease covenants such as insurance obligations and whether the existing service charge will need to be (or is capable of) being amended.

Rights of residential occupiers

Residential occupiers enjoy numerous statutory protections that have the potential to prevent or delay a rooftop development.  If a rooftop development is to be structured by way of grant of an airspace lease to a developer, the grant of that lease (or the exchange of an agreement to grant such a lease) could trigger an obligation on under the Landlord and Tenant Act 1987, to serve notice on certain qualifying tenants to give them an opportunity to acquire the lease on the same terms.  Failure to serve such notices will result in criminal liability.

There is also a risk of:

• the tenants exercising their statutory right under the Leasehold Reform Housing and Urban Development Act 1993 to make a collective enfranchisement claim and acquire the freehold (including the airspace within which the development is to be undertaken); and
• the tenants exercising their rights under the Commonhold and Leasehold Reform Act 2002 to collectively take over the management of the building through a tenant-owned right to manage company. This won’t result in the airspace being divested in the tenants but could make its development more difficult.

In all cases, tenant engagement at an early stage is critical.  If tenants are largely supportive of the development (because they stand to financially gain or have improved building facilities as a result of the development) exercise of their statutory rights is less likely.

Planning

The former government supported rooftop development, which is evidenced by the introduction of permitted development rights in August 2020.  But the devil is in the detail and, in reality, such permitted development rights are arguably akin to seeking full planning permission given the number of hurdles that need to be overcome.

Class A of the GDPO 2015 provides permitted development rights for upward extensions of up to two additional storeys upon the following types of building without the need for planning permission:

• Detached, purpose-built blocks (of 3 or more storeys);
• Houses (if the new storeys are to extend a home);
• Detached, terraced or semi-detached houses (to build new flats); and
• Detached, terraced or semi-detached commercial buildings.

First hurdle:

Such permitted development rights are not available where a local authority has introduced an Article 4 Direction removing such permitted development rights, the site is located within a conservation area or the property is listed.

Second hurdle:

If we take the detached block of flats as an example, there are number of requirements and conditions required to be met to enable upward development via permitted development rights:

• firstly, the block must have been built after 1 July 1948 and before 5 July 2018;
• secondly, the current building must be at least three storeys high; and
• thirdly, it cannot be higher than 30m once extended upwards.

Third hurdle:

Whilst planning permission is not required, prior approval is required prior to commencement of development. The Council have a plethora of considerations they can consider:

• possible impacts on traffic, air traffic and defence, protected views;
• contamination risks;
• flood risks;
• the appearance of the building overall;
• overlooking, privacy and loss of light for neighbouring buildings;
• adequate natural light in new habitable rooms; and
• minimum space standards.

Fourth hurdle:

A report from a chartered engineer or other competent professional confirming that the external wall construction of the existing building complies with the Building Regulations 2010 must be provided.

In practice, Councils are treating these prior approval applications as if they were no different from full planning applications. Given this approach, permitted development rights are not being used as expected.  So, whilst the principle of upward development was supported by the previous government, a satisfactory framework to enable upward development outside of the planning system has not been provided.

The current government have set themselves an incredible housing target so, unsurprisingly, they also support upward development and the NPPF policies on upward developments and housing have been relaxed.  More specifically, paragraph 125e now supports the use of airspace above existing buildings for new homes, including upward extensions like mansard roofs, provided they are well-designed, consistent with the surrounding area, and maintain safe access. The paragraph further confirms that a condition of simultaneous development should not be imposed on an application for multiple upward extensions unless there is an exceptional justification.

The Building Safety Act

Your building may already be designated as a higher risk building or a relevant building under the Building Safety Act or it may become one as a result of adding additional floors. If it is, the development works will be subject to the additional requirements imposed by the BSA regime.  For an explanation on how the Building Safety Act could impact mixed use buildings, please read the following article: Mixed-use buildings and the BSA – how to avoid getting all mixed up!

Construction

Rooftop developments present a number of significant challenges from the perspective of those charged with delivering the project. Key risks include:

• the condition of the existing structure;
• the risk of nuisance claims from existing occupiers; and
• the requirement to comply with a myriad of third-party agreements.

In order to ensure that these “time and money” risks are all fully identified and allocated correctly between the employer and the contractor, early contractor engagement is essential.  Whilst an employer is likely to want price certainty for the project under a fixed sum contract, a contractor is unlikely to accept a design and build procurement method which leans towards this outcome unless they have full opportunity to appraise the risks, including site investigation and survey of the existing structure.  Failure to appreciate this will lead to inflated tender pricing to account for unforeseen risk which the contractor has not been given adequate opportunity to assess.

Adopting a two stage tender process with a competent contractor selected to carry out pre-construction services including site investigation, value engineering and design, who will price the project in collaboration with your professional team will increase the probability of key risks being identified and managed at an early stage, It will also improve the chances of getting reliable “open book” costings for the work with minimal reliance on provisional sums.  The alternative is traditional procurement where the cost associated with unforeseen risks and design changes falls largely on the employer.

The increased risks associated with rooftop developments often results in employers seeking a modular construction solution.  Pre-fabrication of units off-site in a controlled environment can reduce a significant number of risks associated with this rooftop development, including:

• reduced program;
• reduced disruption;
• consistency of quality finishes; and
• logistical efficiency,

but it is also worth noting that modular construction comes with its own set of risks:

• lenders are often reluctant to finance modular buildings;
• there can be higher upfront costs and long lead times from manufacturers; and
• integration complexities with existing structure (one size does not fit all).

Conclusion

As MEES regulations tighten, we are likely to see an increased need for building owners to undertake retrofit projects to improve their environmental performance and adding additional floors could be critical to unlocking the funding needed for such projects.  In addition, upward development could be a valuable contribution to the government’s target of 1.5 million new homes by 2029. However, such developments are not for the faint-hearted and there will likely be a myriad and legal and technical issues to consider. For a successful project, having a good, experienced professional team is key. Here at Cripps, we have a team of professionals across a range of disciplines (transactional real estate, residential estates, dispute resolution, building safety, planning and construction) that can advise on all legal aspects of your proposed development. Contact our real estate team.