"Urban areas have the highest property values, but also the least developable space"
Mustafa Sidki of the construction team at Thackray Williams explains the implications for property professionals.
New opportunities and incentives to develop flat roofs
Over the last 12 months, the incentives for freeholders to develop the flat roofs of apartment blocks and buildings they own has reached unprecedented levels.
Firstly, the average UK property price has reached record highs, and the property market does not appear to be slowing down. Urban areas have the highest property values, but also the least developable space, making flat roofs, which are usually a part of a building retained by landlords, a potential goldmine.
Secondly, the Leasehold and Freehold Reform Act 2024 – which is now law, but is far from being implemented – will make it cheaper and easier for some leaseholders to extend their lease or buy their freehold, as well as removing barriers for leaseholders to challenge their landlords’ charges at Tribunal. Prudent landlords have front run what was anticipated to be a leaseholder-biased statute and have sought to maximise their portfolios, whilst they are able to do so.
Thirdly, December 2024 saw the government introduce a host of reforms to planning laws – including a relaxing of rules on building extra storeys on top of buildings – in a bid to resolve the UK's housing crisis by plugging the gap on the 1.5 million home deficit. The government’s housing strategy is to assign local councils mandatory housing targets, based upon available space and existing housing stock, and councils will be tasked with meeting a target of 370,000 new homes per year.
Whilst it can be straightforward and cost effective to develop on top of a building using modular construction methods – especially given the incentives outlined above – freeholders that are ‘building up’ are encountering legal challenges when seeking to exercise their rights.
Challenges to removing telecommunications equipment installed on flat roofs to facilitate development
Historically, savvy freeholders have generated an additional income stream by renting their urban flat roofs to mobile network providers for infrastructure such as telecommunication masts, under Code Agreements, which confer code rights under Schedule 3A of the Communications Act 2003. While the prospect of building up may now be more attractive than the ongoing income for hosting communications apparatus, unfortunately, it is not simply a matter of serving notice.
Registered operators enjoy a form of security of tenure under Paragraph 30 of the Electronic Communications Code; this allows them to keep their electronic communications apparatus installed on a roof even after the code agreement has expired.
The only way that a freeholder may terminate a code agreement is by serving a notice which:
· Sets out the statutory ground upon which to terminate the Code Agreement;
· States the date on which the freeholder proposes that the Code Agreement should come to an end, giving the operator no less than 18 months’ notice.
The operator is entitled to serve a counter-notice within 3 months of the freeholder’s notice. If this counter-notice is accepted by the freeholder, then the Code Agreement continues. However, if the freeholder does not agree to continue the Code Agreement then the operator is entitled to apply to the Tribunal within 3 months of its counter-notice for an order that the Code Agreement should continue and the freeholder must establish a statutory ground to terminate the Agreement.
Freeholders planning to redevelop a roof must ensure that their code agreement termination notices are valid or they will face significant implications on the timescale of the development.
Potential breach of covenant from developing on flat roofs
Freeholders will also need to consider the impact of development of flat roofs on their covenants with residential and commercial leaseholders occupying their buildings.
It is an inevitable part of construction for there to be noise and mess, which usually amount to breaches of the implied covenant of quiet enjoyment (see Lawson v Hartley-Brown (1996) 71 P & CR 242). Freeholders undertaking development can be met with an injunction requiring them to comply with their obligations to lessees under their lease covenants. Alternatively, they may receive orders for ‘specific performance to like effect’; for example the Court will apply a test to ascertain whether the freeholder has exercised its right to develop reasonably, by considering the following factors:
· Were all reasonable steps taken to minimise disturbance to the lessee?
· Was the lessee informed of development plans well in advance and kept informed and updated on the progress, level of noise to be expected etc?
· Was the requisite scaffolding designed to protect the appearance, access and amenity to the lessee’s premises?
· Was an agreement reached to minimise disturbance with the lessee and ensure contractors/managers are aware of what has been agreed, with regular meetings to discuss any concerns?
· Was the lessee offered any compensation?
Nuisance and damage from developing on flat roofs
Structural damage and water penetration can arise from works to a building’s flat roof, especially where the original roof covering is removed to facilitate the installation of an off-site manufactured modular construction penthouse. Such incidences can lead to causes of action for nuisance and for damages.
Damages are normally assessed in three ways:
1) The cost of cure, which is the normal measure of the cost of reinstatement (i.e. restoring them to their pre-damage position)
2) The alternative measure, which is assessed by the diminution in value of a property
3) Loss of amenity.
It is also possible for lessees to recover damages for distress and suffering.
Good communication between freeholders and their lessees is key to avoiding disputes, as is the implementation of a rigorously controlled construction management plan which recognises the needs of residents and occupiers of a building and regulates a project.
Complications arising from party walls
A party wall is a wall that forms part of a building and stands on a boundary between two properties. In the case of a flat roof, it is often the case that a party wall will form part of the structure between the flat roof and a flat below.
A freeholder must comply with the Party Wall Act 1996 (the Act) if they propose to carry out works to an existing party wall, or to build a new party wall. Prior to commencing the works to a party wall, a freeholder is obliged to serve notice on the lessee with whom a party wall is shared. A freeholder is also obliged to exercise reasonable care when carrying out works to a party wall.
It is a surprisingly frequent occurrence for freeholders not to realise that their flat roof shares a party wall with a subjacent flat and so fail to serve the requisite notice. If a freeholder carries out work without complying with statutory obligations of the Act – i.e. without first giving notice, obtaining consent or obtaining a valid award under the act – they lose the protection afforded under the Act. This means that any damage or loss sustained as a consequence of the works become actionable in private nuisance (Louis v Sadiq (1997) 74 P&CR 325). Freeholders may also be liable for breach of statutory duty, meaning a lessee may be entitled to claim further damages.
It is imperative therefore for a freeholder to instruct surveyors to carry out a pre-works survey, to establish whether parties share a party wall and to serve the requisite notice.
Roof gardens and the doctrine of encroachment
Freeholders who allow lessees to use flat roofs that are not part of their lease as roof gardens may also face potentially insurmountable challenges to developing upwards on their flat roofs, due to the doctrine of encroachment. In summary, if the lessee (or their predecessor/s) has had exclusive use of the flat roof for an extended period of time, they may meet the criteria to apply to have an extension to their lease to include the roof within the demise of their own apartment – with the potential to extend the lease for a further 90 years for peppercorn rent.
In such circumstances a freeholder would be hamstrung from developing the roof. So what are the criteria that would enable a leaseholder to extend their lease legally to include the flat roof and so prevent development?
The lease between a freeholder and lessee will define the demise of a flat. Often leases are described as “eggshell leases” where a demise is expressly limited to the surfaces of the relevant walls, floors and ceilings of the premises and does not include the underlying structure. The freeholder will own the building, containing the flat. The flat roof will usually be retained by the freeholder.
The potential for encroachment arises when a tenant occupies land belonging to the landlord which is not included in the tenant’s demise. After the expiry of the limitation period (the period in which any challenge to the ongoing use of the roof must be issued under the Land Registration Act 2002), the land (flat roof) is presumed to be an addition to the land demised to the tenant (their apartment) so that it becomes subject to the terms of their tenancy. Although the tenant may acquire a title to it against the landlord for the reminder of the term, the tenant must give it up to the landlord when the tenancy ends. However, although a tenant merely acquires an accretion to their lease, leases can be extended – leading to the doctrine being described as a form of adverse possession.
The doctrine was clarified on 18 February 2025, when judgment was handed down by the Property Chamber, First-tier Tribunal, Land Registration Division in McGee(s) v. Long Term Reversions (Harrogate) Limited. This judgment now provides a clear authority from a specialist tribunal: because the McGees (the lessees) could prove at least ten years adverse possession of the roof space, which was not included in the leasehold title to their flat, that gave rise to the presumption of encroachment. Accordingly, the Judge directed the Chief Land Registrar to give effect to the McGees’ application for registration of leasehold title absolute of the roof space as if the freeholder’s objection had not been made.
The judgement clarified that lessees may seek to establish a leasehold title to a roof owned by the freeholder based on encroachment if they can show that:
· they, or their predecessors in title, were in possession of a roof by having a sufficient degree of single and exclusive physical custody and control of it
· they had an intention to exercise such custody and control on their own behalf and for their own benefit
· they have met the requirement for the requisite period of time.
To avoid encroachment, freeholders should regularly check the parts of the building they retain and challenge encroachments early to prevent claims from arising.
Conclusion
The relaxation of planning laws at the end of last year provides new commercial opportunities for freeholders to develop on flat roofs on their buildings. However, there are a number of considerations that could give rise to successful legal challenges.
Freeholders should take expert advice before any significant investment in building up to ensure that any development is compliant. Proactive communication with tenants can also be constructive in facilitating development by reaching agreements that accommodate the interests of all parties.
