A potential way of dealing with the lack of development land space in urban areas is not to build on land but its airspace. Anne Wright and Avi Barr discuss the construction and legal implications developers should consider.
Airspace developments can convert unused airspace above residential, commercial and public buildings into something else – including much required housing. Although not a new idea it remains potentially advantageous to the likes of private and institutional freeholders, retailers, local councils, London Boroughs and housing associations by generating higher rental returns on investment whilst simultaneously enhancing the value of their property portfolio. Tesco greatly enhanced the value of its property investments by ‘building up’, as have Transport for London, CrossRail and a number of London Boroughs principally, Southwark and Camden.
Additional capital and rental income have been obtained whilst at the same time their respective properties have been improved and renovated in the process of development. Neither are these big-name land owners the only airspace developers, as freehold owners of multi-occupied properties (whether owners of a building subject to long leases, or indeed residents in blocks of flats with shared ownership) are also increasingly joining together with developer contractors to build out additional space and exploit value in their properties. Add in the potential in increasing housing in our cities and urban areas and you have an almost perfect solution to the present housing shortage.
How difficult is it?
The basic requirements for airspace developments are not that dissimilar to any development: the necessary components of land (or in this case airspace over land), services, planning consent, funding and the actual construction are all there. However, what makes airspace developments different is the obvious potential design and technical difficulties in building up, and the resultant planning constraints, increased services provision and the actual legalities relating to other occupier or tenant rights, such as access and rights of light, party walls etc. All these additional considerations may make funding that little bit too difficult to obtain.
‘Build up rather than build out’ was a statement in a housing White Paper by Sajid Javid last year when Secretary of State for Communities and Local Government. This was followed by the most recent July 2018 National Planning Policy Framework which further confirmed government support for: ‘… opportunities to use the airspace above existing residential and commercial premises for new homes.’ This policy indication can only be helpful to landowners and developers wishing to build on up. It is not obviously a ‘pass through’ in the same way as converting space to residential use under permitted development rights, but the policy is there as a written down intention which cannot be ignored by planning authorities. Indeed the approach to airspace developments by local planning authorities does look to be softening, particularly in Central London where local authorities are under pressure to find opportunities to increase affordable housing, and housing generally, without incurring additional land costs. Camden has been at the forefront of this drive with a stated aim to create 800 new homes in the next four years and Lambeth and Westminster are following suit.
Land and building
Each development will be different but when considering whether an airspace development is feasible an obvious first step is a comprehensive assessment of the suitability of the building to be built upon: whether it is strong enough for further construction and the number of additional units it can reasonably take. The structural survey needs to include not only structural capability but also an assessment of access requirements for the build and as built structure, fire protection, maintenance, acoustics, provision of services (including internet sustainable technology) and possible construction methods. The loading capacity of the existing building designated to support the proposed development is the most important consideration when determining the development’s feasibility. It is unlikely the original structure will have been built with a loading capacity for any significant increase and the building’s ultimate capacity to take additional loadings will depend upon the actual type of the structure. Any additional loadings will need to be distributed across the existing structure to enable it to accommodate such loadings without creating undue stress and structural damage. The engineering solution arrived at to accommodate the additional structure will be key to the success of the whole project.
There are a number of techniques used to limit disruption to existing residents and the local community. Several developers use pre-made, modular structures that are built off-site and installed almost fully formed. This reduces the need for on-site labour as pre-fabricated units can be constructed using concrete, steel or timber materials (for weaker structures) to form the basis of the residential apartment or commercial unit, with such units being up to 95% constructed before being lifted on-site. Access routes for cranes to deliver the units and crane them on top of the building are therefore fundamental to secure. Factory constructed modular units will comprise the structural frame, wiring and plumbing, internal linings, additional lighting and even painting. The modules are weather-proofed and installed with window frames and glass so that they are immediately watertight once craned into position.
Although the existing building will have the benefit of services and infrastructure, it is vital to consider the actual capacity requirements needed for the increased number of units in the building once it is developed. Capacity checks will therefore be required at an early planning stage to assess the impact of the proposed development and develop a workable solution with each service provider. This may involve separate service facilities or an extension to those existing. If it is possible to extend the use of existing services (in particular for foul water drainage systems) this will lessen the cost. By extending the use of the building the category of capacity use could be exceeded, however, and an alternative solution will need to be found in consultation with the utility provider.
Much can be achieved in designing alternative layouts and connections into existing service routes and layouts and these should be investigated – as new systems and locations add further complexities, not limited to the siting of such systems potentially outside the building and potentially outside the land title. An added factor to consider is that the majority of services are found in roof voids together with things like air conditioning, lift plant, ventilation, chimney shafts and flues, smoke detection systems, aerials and satellite dishes etc, all of which will, as a result of any potential build, need to be relocated or re-routed elsewhere. Although these are all considerations familiar to all developments in technical design terms, they are rather more complicated in the case of air space development. Additionally, for private developers not every roof works financially. The kind of construction required is costly and as a result air space development is so far mainly taking place in central London, where values are high and profits can be made.
Legal issues and practical solutions – existing tenants and their leases
Not surprisingly, a roof top development scheme may well be met by resistance from resident tenants and neighbouring property owners who will have concerns as to the noise and disruption caused and possible effect on the enjoyment of their property, availability of amenities such as car parking, and the effect on value.
One of the sweeteners could be the offer of a newly refurbished building exterior and communal areas including lifts and staircases and of course a new roof – all undertaken outside of the service charge regime. Whatever arrangement is arrived at needs to be documented with the party responsible for the maintenance and repair of communal areas, which could be the freeholder, management company or the tenants themselves. Offering to extend the leases for the existing tenants and even a profit share with the leaseholders are other approaches which a freeholder or developer may be able to offer. Whatever the deal there are legal constraints which need to be understood and correctly dealt with. In the case of neighbours, as with any development, restrictive covenants, rights of light and party wall legislation need to be taken into account and managed at an early stage.
What does the lease say?
Roof top developments also have their own set of issues to consider, the first being who owns the roof space and air above it? Although a fairly basic point, the fact that the roof space had already been demised to tenants in a building enabled them to stop an airspace development in a 2014 case, H Waites Ltd v Hambledon Court Ltd  EWHC 651 (Ch). Consideration will also need to be given to any easements in the tenant’s leases as these rights can prevent development. Look out for an express or implied right over the roof. Is there a water tank in the roof space or perhaps a fire escape on the roof ? Does the landlord’s obligation to repair actually prevent them undertaking the works to the roof which involve its partial demolition?
Tenants’ rights of first refusal
The right of first refusal is contained in Pt I of the Landlord and Tenant Act 1987. If the sale is a ‘relevant disposal’ for the purpose of the legislation, the proposed lease must first be offered to the requisite majority of qualifying tenants (generally long leaseholders) on the same terms and at the same price as it was to be offered to the developer. A failure to comply with the Act is not only a criminal offence but the anti-avoidance provisions mean that if the landlord fails to comply, the tenants can compulsorily acquire the lease from the purchaser direct for the price it paid. Where the Act applies the qualifying leaseholders need to be given a minimum of two months’ notice prior to any sale which can seriously affect the commercial viability of the development. There are ways of working around the legislation and legal advice can help identify a correct approach but this is certainly not an issue to ignore.
Whereas if the rights of first refusal are triggered on a sale, enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993 effectively allows the leaseholders to force through a sale at any time. Under the legislation they are required to purchase the whole of the building and the cost normally makes it an unattractive proposition for leaseholders. The legislation states that their entitlement is to a purchase of an ‘interest reasonably necessary for the proper management or maintenance of those common parts’ and this entitlement can therefore often catch roof space. The risk to the developer comes if the tenants are able to argue that the value of the rooftop space is as amenity space rather than potential development space. Another thing to think about at an early stage to mitigate this risk.