“Injunctions: everything a developer needs to know”
injunctions have the capacity to significantly affect developers – and potentially be very costly.
Rashpal Soomal, partner and Kate Poole, Partner
Injunctions are business-critical issues for developers. However, they are also complex issues of property law. A basic understanding – of what they are and how they work – can make all the difference; so what are the issues, and what do developers need to know?
What is an injunction?
There are three main types. A prohibitory injunction stops something happening – like a building going up. A mandatory injunction orders something to happen, like an existing building being demolished. A quia timet (Latin for “because he fears”) injunction can be obtained in anticipation of works starting if there is risk they will cause an injury in law.
What is the test for granting an injunction?
Since 1895 the test has been the ‘Shelfer test’ which assessed whether an injunction would be granted. It asked first, is the injury small? Second, is it capable of being estimated in money? Third, could it be adequately compensated by a small money payment? And lastly, would it be oppressive to grant one? The answer had to be yes in all cases before an injunction was refused – meaning a very high threshold .
However, in 2014 the Supreme Court decided in Coventry v Lawrence that Shelfer was outdated and should no longer be the default – stressing that injunctions are discretionary and not automatic. This means even if claimants have clearly-infringed rights an injunction is not guaranteed.
Theoretically this should have led to a greater range of options – but in practice judges and tribunals are conventional creatures. So injunctions remain the primary remedy – but not an inevitability.
Each case is unique but good developer conduct is always crucial. Developers should identify any injuries, engage proactively, detect neighbour concerns and where possible make concessions – perhaps offering to adapt a scheme. Poor conduct – like accelerating a build in order to present the court with a fait accompli – will increase, not lessen, the risk of an injunction.
What can developers do in practice?
Developers should think very carefully about what they are saying and doing – at all times. Evidence concerning how they are making decisions may well be highly commercially sensitive, but it is unlikely to be legally privileged – which means it would be disclosable in litigation. So, for example, in a rights of light case the surveyor’s initial report will be disclosable.
In Beaumont vs Florala (2020) an injunction was awarded even though the developer’s conduct was not unreasonable. Unfortunately, there were some disclosable communications where the developer wrote they would go ahead despite objections, as there was a lot of money to be made from the scheme.
Timing a claim
Claimants can apply for a quia timet injunction before works start – however, courts will not consider speculative claims, so works must be imminent. In CIP Property (AIPT) Ltd v TFL, LUL, Derwent (2012), the claimant brought a claim against TFL etc to injunct the oversite development above a proposed Crossrail scheme because of anticipated loss of light. However, the injunction was refused as the claim was premature. There was no planning permission, the defendant did not even own the site and only had a conditional option to acquire it which would not be exercisable for at least another 5 years. It is therefore possible to apply too early.
Leaving it too late is also risky, but impacted owners really only need complain openly in good time – they do not need to actually sue. In the Heaney rights of light case, the impacted neighbour complained in correspondence but did not bring proceedings. The developer started building – but then had difficulty letting the space due to the unresolved claim. They then brought proceedings themselves to obtain a declaration that the neighbour was not entitled to an injunction. However, the court granted the neighbour a mandatory injunction instead and the developer was forced to cut back.
The crucial difference between interim and final
The consequences for developers depend on the type of injunction.
Final injunctions are final orders, and normally take 12-18 months from proceedings starting to the final court hearing. During this period developers can carry on building but do so at their own risk, since they may be forced to cut back.
Interim injunctions are emergency measures to stop work immediately. These maintain the status quo until a final hearing, at which point the court decides whether to make the injunction permanent or remove it. Interim injunctions can be obtained quickly – sometimes within hours. However, as the court does not have the opportunity to hear all the evidence, they require cross undertakings in damages from the claimant. This is a promise to the court to compensate the developer for any losses caused by the interim injunction should the court eventually decide it should not have been granted. This is therefore a big risk for a claimant – we have not seen any interim injunctions to protect rights of light.
What will an injunction cost?
Most claimants do not actually want injunctions. They threaten them to obtain compensation. There are two main concepts:
Damages in lieu: If an injunction is refused and the court awards damages in lieu, the amount of damages is assessed as the number that would be agreed in a hypothetical negotiation between developer and claimant where they are willing to do a deal. Since they would most likely agree to share profits, damages can be awarded on that basis and the cases award anything fro m 5%-50% of the extra profit the developer would obtain from infringing their neighbour’s rights. Since the developer takes on most of the risk, a figure of 15% is not uncommon, although there is a ‘sense check’ to make sure the figure ‘feels right’.
Ransom: This is the actual figure a developer would be willing to pay in order to avoid having to comply with an injunction, and therefore varies depending on the stage reached when the injunction is granted. If a build has been completed, say, and an injunction granted, the developer might be willing to pay a lot more than 15% of the profits, since having to comply would mean forfeiting all of the profits, cutback costs, new professional and planning fees, and potential loss of rent or claims from disrupted tenants.
As we can see, injunctions have the capacity to significantly affect developers – and potentially be very costly. However, understanding the risks, preparing in advance, and anticipating potential problems could help developers either mitigate the potential costs or even avert disaster.