Rights of light surveyors help agreed conduct approach

Before rights of light (RoL) insurance was introduced approximately 30 years ago, surveyors served as intermediaries when potential issues arose and were often the only way of resolving disputes.

Unless the developer approached the owners of affected properties directly with an offer of compensation, a surveyor would prepare reports and negotiated with neighbours to reach release agreements in exchange for such payments.

However, the advent of dedicated insurance meant that a significant portion of this negotiation work was no longer needed. Consequently, surveyors saw their fee income drop, because their services were generally only required when RoL claims were made and the insurer needed their expertise.

The introduction and evolution of agreed conduct over the past 15 years or so has gone some way to replacing that lost negotiation work.

During this process, insurers could identify any significant objections from neighbouring properties regarding loss of light about potential RoL infringements by the proposed development.

They would then offer to cover the neighbouring properties that had not raised concerns, leaving the developer to respond to any that had made objections.

For properties that required discussions under neighbourly matters – agreements required to facilitate the build such as party walls – insurers would apply an excess or deductible cost.

This accounted for the potential that the affected neighbour could claim greater compensation, and the likely appointment of a surveyor acting for the neighbour that could be knowledgeable regarding RoL.

Over the years, RoL insurance has evolved. Insurers began to offer pre-planning coverage, although this option often came with higher premiums and significant excess levels.

Insurers then introduced the concept of agreed conduct, which aimed to provide a pragmatic approach to managing potential RoL disputes by having the developer and the injured party agree a financial settlement. This would enable rights to be released and the developer to commence building.

Where insurers believe there is a reasonable chance of the dominant owner, being the neighbour, asserting their right to light – perhaps because the issue was mentioned in the planning objection or the neighbour has been involved in such disputes previously – they would consider reactive agreed conduct.

In such cases, insurers will impose an excess, typically around the uplifted book value stated in the RoL report – typically the amount of compensation the surveyor feels is a reasonable value for the light loss – and this excess would be borne by the insured party.

If an injured party comes forward and asserts their rights, the policy allows the insured party's professional advisers, such as an RoL surveyor, to negotiate on their behalf.

Typically, such advisers can negotiate settlements up to around 70% or 80% of the excess amount before the insurer becomes directly involved. However, a broker would want to be notified at an early stage to avoid any possible breach of policy terms.

It is important to note that this is a passive approach, meaning that unless the neighbour comes forward the developer should remain silent on the subject of light.

This situation usually arises when the injured party has expressed strong and significant material objections during the planning process, or when there has already been adverse communication concerning their RoL.

In part, developers take this approach as they must act in a neighbourly manner, because if they do not do so the courts will take a dim view of their behaviour should litigation ensue.

As with the reactive approach, insurers apply an excess. However, the key difference is that they now require the insured party's surveyor to take the initiative by approaching the injured party and attempting to negotiate a reasonable compensation figure, which insurers hope to be within the excess and to settle the matter.

As with the reactive basis, the client's surveyor is often allowed to negotiate up to 70%–80% of the excess before the insurer becomes involved.

The aim is to reach an agreement and obtain a release from the injured party, effectively resolving the potential claim before it escalates.

Under either form of agreed conduct, a claim is not formally registered under the policy until it looks likely that the excess will be surpassed, which is when insurers become liable for compensation and professional costs.

Because many policies now operate with a degree of proactive agreed conduct, surveyors are regularly involved in the process. This means that, as they did before the advent of RoL insurance, they are again negotiating settlements, securing agreements and maintaining their role in the process.

In addition, since there is now greater awareness of RoL due to press coverage, the chance of neighbours coming forward on a reactive agreed conduct basis has risen, again increasing the need for surveyors to carry out negotiations.

Another issue to be aware of is the difference between the wait-and-see approach and agreed conduct in the way the excess is handled.

With the former, costs such as surveyor and legal fees and any compensation awarded both erode the excess. In contrast, an agreed conduct excess is only reduced by compensation, not professional costs.

To illustrate this, let's suppose a claim is settled with £7,500 awarded as compensation and £7,500 for surveyor and legal fees.

The applicable excess is £10,000. On a wait-and-see basis, the insurer would contribute £5,000, because both costs and compensation erode the excess.

However, under agreed conduct the insurer would contribute nothing, as the compensation alone – £7,500 – is below the £10,000 excess, with professional costs not being considered. This results in additional cost to the insured party.

These tactics have inevitably led to higher settlement amounts, which is why almost all policies now include some element of agreed conduct which allows clients and their advisers to deal with potentially spurious claims without seeking the insurer's agreement.

Furthermore, the terms for cover before and after the planning process have become very similar, with post-planning quotes dependent on no material objections having been raised.

Given these trends, surveyors are advised to recommend that their developer clients consider RoL issues well before submitting planning applications.

By doing so, developers can choose between pre- and post-planning cover, potentially avoiding complications and additional costs down the line. As the terms are similar, it makes sense to at least obtain pre-planning terms, especially if pre-application work with the council means planning in principle is agreed.