Feasible/Not Feasible/Further Investigation Required: The Importance of Front-Loaded Legal Feasibility Work in Airspace Developments

For a developer what makes Airspace Development more susceptible to sunk costs risk than a traditional ground-up development? Simply, it’s the fact that you’re constructing additional flats on an existing building, a building that will, more often than not, contain existing tenants of existing flats on existing long-leases. These risks are in addition to the usual risks taken on by a developer in any property development. Failure to account for these additional risks early may mean that a developer can spend a lot of time and money carrying out work on potential sites that either were never going to be developable or where the costs to perfect the sites for development would be prohibitively costly.

When we advise on Airspace Developments we set out three key areas of advice that should be taken by a developer before any other work is undertaken, being:

1. Legal Feasibility: is there anything evident from the title structure of the estate and building that would mean an Airspace Development is not possible or if additional costs and negotiation would be required to perfect the title;
2. Structural Feasibility: Essentially, will the building hold the weight of the new development and are there any structural works required; and
3. Fire Safety Feasibility: What fire safety works are required to ensure that the building and the development meet the requirements of the Fire Safety (England) Regulations 2023.

For this piece we have collaborated with Sean Hanlon of SPH Structures, Structural Engineer who has extensive experience in Airspace Development projects and has published a number of technical reports for the Airspace sector.

Like Buckles SPH Structures are members of the Association of Rooftop and Airspace Development who advocate for best practice in Airspace Development for the benefit of developers, freeholders and all stakeholders.

Legal Feasibility

We first advised on an Airspace Development in 2016 and have advised on numerous projects since. We quickly identified that one of the biggest costs risks to developers who wanted to develop Airspace was whether it was legally possible to develop a roof was only answered in the course of wider due diligence on a property, often after significant sums had been spent by a developer on legal fees and disbursements.

That being the case, we identified key legal risk areas to the progress of an Airspace Development proceeding, being:

Who Owns the Roof of the Building?

This may sound like a simple question to answer, but until a developer has studied the title to a property there’s no way for a developer to really know. For example, a developer may well have been negotiating with a freeholder but the building, or the structural parts of it, may well be leased to a management company. We have seen several instances where a developer has spent considerable time and money negotiating with a freeholder who, unbeknownst to the freeholder, didn’t own the roof of the building.

What do the existing tenants own?

The form and content of legal documents has changed considerably over the years, and that includes long leases of flats. In general leases have become more detailed and more accurate as time has gone on reducing ambiguity but older leases can lack detail and ambiguity can remain. What a tenant owns is called ‘the Demise’ and the extent of the Demise is set out in the lease. The ideal form of a demise is one that:

• Specifically excludes the structure of the building, the roof and the foundations; and
• Is limited to the plaster finishes of walls and ceilings and floor coverings; and
• Excludes interior structural walls;
• Clearly identifies the extent of the demise on a floor-plan.

Essentially, the Demise – what the tenant owns – is limited to the interior surfaces of the flat and that’s usually how more modern leases are drawn. This means that the tenants cannot claim to own the roof and there’s nothing to prevent a developer from attaching scaffolding to or oversailing the building.

Older leases can lack this level of detail, be ambiguous or define the Demise so that the tenant owns more than the interior of their flat. Examples we have seen include:

• A demise that contained the whole of ‘exterior walls’.
• Various demises that include the beams of the roof;
• Demises that include the loft or eaves space;
• Demises of both the interior and structural parts of the building, split vertically;
• Ground floor demises including gardens that immediately abut the building meaning scaffolding could not be grounded without the consent of the flat owners.

Any one of these situations would mean a developer would need to either walk away from a project or take time and incur costs in attempting to vary leases of the tenants in the building. That kind of cost would almost certainly require the payment of the tenants’ costs too and would rely on the tenants agreeing to any proposals.

Finally, developers should be careful to make an inspection of the roofspace above the flats to ensure that none of the top-floor tenants are using the roof-space for the purposes of storage, from which they may argue for rights of occupation.

What are the Existing Tenants’ Rights?

The tenants in the building will have rights over the building and the estate. These are usually limited to those rights required to access their flats, utilities and the rights to access common parts of the building so the tenants can repair and maintain their own flats. However, in some cases the tenants are granted rights that make an Airspace Development impossible or, again, potentially very costly. The most obvious examples are rights granted by the tenants over the roof, for example for recreational purposes or to access common utilities boxes. Less obvious is the impact tenant rights can have when they’re granted over the estate, that either impact the ability to construct requisite infrastructure or mean that usual planning conditions may not be able to be met. For example:

• Exclusive use of car parking spaces that mean scaffolding cannot be grounded;
• No room on an estate for the siting of a compound area or crane;
• The use of recreational areas on an estate that prevent the siting of additional or enlarged bin and cycle stores;
• Rights of way that impact some element of construction that don’t include a reservation to for temporary obstruction or re-routing;
• Insufficient room on an estate to site additional car parking spaces.

What are the Reserved Rights?

A freeholder has a general right to deal with their own building as they see fit, subject to their obligations as Landlord. That includes the right to develop their own property.

However, where there are existing leases and tenants in a building the Landlord will owe those tenants the right for the tenants to peaceably enjoy their property. If that peaceful enjoyment is breached by the Landlord by the allowance of a development at the property, the tenants can seek to injunct the Landlord to stop the development and obtain damages for breach of peaceful enjoyment.

There are a usual set of rights reserved to a Landlord in a lease that will likely be the same rights the tenants enjoy but reserved to the Landlord. However, there are certain rights reserved to a Landlord in a lease will mean that it’s more difficult for a tenant or tenants to claim their quiet enjoyment has been breached by an Airspace Development. So we like to see:

• Right reserved to erect scaffolding (whether or not light and air are obstructed); and
• Right reserved to develop the building or the estate.

Whilst these reservations aren’t essential for an Airspace Development they do assist.

Finally, with the Fire Safety (England) Regulations 2023 if a building is over 11m in height or will be over 11m once the development has been completed then sprinklers may need to be installed in the common parts of the building and the flats. It’s essential that as part of initial feasibility a developer confirms that there are sufficient rights reserve in the lease to enable the landlord to install sprinklers in the flats (and, of course, a corresponding obligation on the landlord to provide access to the developer to do so in the Development Agreement/Development Lease!)

Finally

Having a legal feasibility study undertaken on a proposed Airspace Development prior to expending significant costs on other matters can avoid significant sunk costs exposure for developers undertaking Airspace Development.

At Buckles we offer a fixed fee of £500.00 + VAT + expenses to produce an initial feasibility report that covers the points we have identified here and produces an easy-to-follow traffic light system:

Feasible – there is nothing revealed by our study that would immediately prevent an Airspace Development

Further Investigation Required – there are immediate areas of concern regarding the delivery of an Airspace Development subject to the specific requirements or costs profile of the development.

Not Feasible – our study reveals that Airspace Development is either not possible, not possible on the proposed terms or not possible without significant cost.

Over the years our Feasibility Study has saved our Airspace Developer clients

Structural Feasibility

At time of writing we have probably been involved with north of 70+ Airspace schemes to various degrees, whether that be a quick assessment, full feasibility assessments, or full design and build out. As with Buckles, that initial review can save thousands of pounds and hours of time being wasted by pursuing the wrong scheme.

For Structure, all the risk lies within the existing building.

How we build, what we build with and what that looks like have all dramatically differed across the last 100 years or so. Amalgamating those initial considerations with current legislative requirements can be quite the balancing act; with consideration and you’re at least walking into a scheme eyes wide open, without it, and you could be hitting a dead end pretty quickly.

At ARAD we contributed to a ‘Risks and Red Flags’ Technical Guidance note along with Architecture (MAX Architects) and Fire Engineers (Delta Fire Engineering). Between us we highlighted all of the initial red flags and risks that we each look for when a proposed Airspace scheme lands on our desk – we whole heartedly recommend reading that in conjunction with this note.

Upon receipt of that first phonecall, email or enquiry, our first step is to look at the existing building asking the question ‘is it feasible?’. Age of construction, form of construction, condition of construction all play a big part in the decision here and if there are any red flags it’s a straight ‘not feasible’ from us.

Some buildings are more suited to vertical extension than others, so a ‘yes, feasible’ might be an easy answer on some buildings compared with ‘yes, but… further investigation required’. That could be a question of just how much access we have to the building for investigation and testing works in the absence of existing building information.

The feasibility process is well established now and follows the three (3) following steps:

1. Visual Condition Survey.
   1. The condition of the building itself may prohibit any form of extension. Poor condition, lack of maintenance may mean that the existing structure requires a heavy level of intervention before we consider any further extension to it.
   1. An estimate needs to be made here regarding the expected remaining working life of the structure as well. Any new extension will be designed and built to last a minimum of 50 years, will the existing structure be able to do the same?
2. Investigation & Testing.
   1. The visual condition survey serves as a useful aid to establish where we can and cannot access for any investigation and testing as well. Quite often this is only limited to external and communal areas. So understanding how the existing building is framed and behaving may require some investigation prior to adding additional floors.
3. Feasibility Assessment.
   1. How much are we overstressing the existing building? Does it have spare capacity within it to take the load? Would any strengthening works be required to deliver the envisaged scheme? Here we typically provide the requirements for each storey added, i.e. +1 – ok no strengthening, +2 with strengthening, +3 not feasible, for example.

The final consideration we have to make is legislative. I.e. compliance with Building Regulations. Extending a building above a certain number of storeys (differs for each use case) will trigger requirements to make the whole building compliant with current legislation.

Now this can difficult for a number of reasons, access for one, cost another, practicality often plays a large part too. Older buildings aren’t necessarily malleable to todays requirements. For those of you well versed with the Building Safety Act and its implications, this is the same question being asked within the Fire and Structural risk assessments being conducted as part of works with existing building stock and Higher-risk buildings now.

We see a lot of schemes get through planning without any form of early input, land on our desk only for us to review them and deem them not suitable for development. This form of development isn’t for the faint hearted, its highly technical and the only area of the construction industry whereby we add a construction site over peoples homes – we (Structural Engineers) treat them as high risk buildings for this reason.