Analysis - Sunshine laws cast pall over developers

Silhouetted workers walk in front of office towers in the Canary Wharf financial district in London February 16, 2011.

LONDON (Reuters) - Property developers are shying away from new projects until more clarity is brought to laws surrounding secretive "rights to light" deals, exacerbating a shortage in prime London offices and potentially stunting economic growth.

"Nobody can do anything until this process is resolved, and they're worried by the threat of a court injunction. I suspect some of them (UK skyscraper developers) have had some anxious thoughts," a senior executive at a FTSE-quoted developer said.

The Law Commission is reviewing whether the rights to light framework is workable, after a court ruling in 2010 that part of an office building in Leeds, northern England, be torn down over the issue.

The Highcross versus Heaney case was later settled without being tested at appeal and the building remains intact, but the case has left uncertainty in the industry.

"It's not clear that (the ruling in the Heaney case) would have been upheld at appeal, and that's why it is uncomfortable to developers," said Barry Hood, a director at rights to light surveyor Gordon Ingram Associates.

Property owners can accrue rights to light over their assets, safeguarding their entitlements to daylight and sunshine. Infringements, such as a new tower blocking light, can be settled informally or via the courts.

London developers are wary of how courts may use the Heaney precedent, and whether they and their profits could be hit by injunctions requiring part of a new building be torn down.

Rights of light issues have traditionally been resolved informally, often with millions of pounds changing hands, before building work begins, or via a developer-friendly workaround using Section 237 of the Town and Country Planning Act.

"Now, developments aren't starting because people are terrified about an injunction," another senior property industry source said, adding this would inhibit future economic growth.

High-profile developments affected by rights of light wrangles included London projects such as Stanhope and Schroders' 8-10 Moorgate, Monteverde Group's 6 Bevis Marks, Land Securities' Walkie Talkie, and Helical Bar's Mitre Square.

Such wrangles could make preletting potential office developments more difficult, two sources said.

NEGOTIATING LEVERS

The rights of light pall hanging over the London development scene exacerbates a growing confluence of global economic woes that, along with increasingly sparse tenant demand, threatens to undermine a boom in central London skyscrapers.

"At the end of the day, they (developers) have to be wary of paying so much (in rights of light settlements) that they make their development unviable," the senior executive said.

The issue is unlikely to effect in-progress blue-chip London office developments such as The Shard, the Pinnacle, the Walkie Talkie, the Cheesegrater and the tower at 100 Bishopsgate, but will hurt the next generation of skyscrapers, two sources said.

"I think there is a real danger of a flock mentality on the back of a case like this," Hood said, referring to developers' concerns about starting new projects in London.

What they face is a framework the industry sees as unfit for purpose and in desperate need of an overhaul to drag its core tenets into 2011, having been formed in the Victorian era.

"This is ridiculous law, what offices these days don't have artificial light on?" said Simon Ricketts, a partner law firm SJ Berwin's planning and environment group.

British Property Federation Chief Executive Liz Peace and other industry sources said the Law Commission review timetable, whose final report is due in 2015, was too long, and condemned developers to still further uncertainty.

"This is making the (development) funders so much more sensitive. Nobody's going to put money into a scheme until they have resolved the rights to light issues," Peace said, adding the review process needed to be fast-tracked.

This and a growing industry awareness of the often-used Section 237 workarounds -- in which developers use local authorities to proceed developments where they could otherwise be held up by injunctions -- may also be subject to judicial attention.

"So far, the courts haven't interfered with these sorts of (Section 237) arrangements," Ricketts said. "But it's a really thorny issue."

(Editing by David Holmes)