Rights of Way and Development Finance: Easement Issues for Developers

An easement is a legal right that allows the owner of one piece of land, the dominant tenement, to use another piece of land, the servient tenement, for a specific purpose. The most common easements encountered in development finance transactions are rights of way, which allow someone to pass over your land to access their property; rights of drainage, which allow someone to run pipes or drains under your land; rights of light, which protect the amount of natural light received by windows in neighbouring buildings; and rights to lay and maintain services such as water, gas, electricity, and telecommunications cables across your land.

For property developers, easements matter because they can restrict where and how you can build on your site. A right of way across the middle of your development site may prevent you from building on that strip of land, requiring a redesign of the scheme. A right of drainage running beneath your proposed building footprint may require the drain to be diverted at the developer's expense. A right of light benefiting neighbouring windows may limit the height or bulk of your development to avoid obstructing those windows. Each of these constraints affects the developable area, the scheme design, and ultimately the gross development value of the completed scheme.

In our experience arranging development finance, easement issues are identified during the legal due diligence process and can cause significant delays if they are not anticipated and managed proactively. A developer who discovers a right of way across their site after the lender has approved the facility, valued the scheme, and instructed solicitors may face a choice between redesigning the scheme at their own cost or negotiating the release of the easement with the beneficiary, either of which takes time and money.

Rights of way are the most frequently encountered easement in development transactions. They can be registered on the title at the Land Registry, or they can be unregistered and claimed by prescription, which means that someone has used the route without permission for at least twenty years. Registered rights of way are relatively straightforward to identify because they appear on the title register and are often shown by a coloured line on the title plan. Prescriptive rights of way are more problematic because they do not appear on the register and may only come to light when a neighbour asserts their right.

A right of way over a development site typically takes one of two forms: a vehicular right of way, which allows access by car or delivery vehicles, and a pedestrian right of way, which allows access on foot. The width and route of the right of way determine the extent of the constraint on the development. A vehicular right of way typically requires a clear width of at least 3.7 metres, plus additional width for turning if the route includes bends or junctions. A pedestrian right of way requires a minimum width of approximately 1 metre. The land subject to the right of way cannot be built upon, fenced off, or otherwise obstructed.

For development finance purposes, the lender's solicitor will identify all rights of way affecting the site and assess their impact on the proposed scheme. If the scheme design accommodates the existing rights of way, no further action may be needed. If the rights of way conflict with the proposed building layout, the developer will need to either redesign the scheme to accommodate the rights, negotiate a diversion or release of the right of way with the beneficiary, or demonstrate to the lender that the right of way can be overridden. Overriding an easement is possible in some circumstances, such as when the easement was created by implication and the route can be reasonably altered, but this is a complex legal area requiring specialist advice. The cost of diverting a right of way can range from £2,000 for a simple pedestrian diversion to £50,000 or more for a vehicular right of way requiring new road construction.

Rights of drainage are easements that allow the owner of one property to run drains, pipes, or sewers under another property. These rights are extremely common in built-up areas where properties share drainage infrastructure. For development sites, the presence of a drain running beneath the proposed building footprint is a significant constraint. Building over an existing drain is possible in some circumstances, with the consent of the drain's owner and subject to a build-over agreement, but most lenders prefer to see drains diverted clear of the building footprint to avoid future maintenance issues and the risk of structural damage from drain leaks or collapses.

Service easements cover rights to lay and maintain water mains, gas pipes, electricity cables, and telecommunications infrastructure across the site. These easements typically include a right of access for maintenance, which means the service provider can enter your land to inspect, repair, or replace the infrastructure. Building over service easements is generally prohibited, and a protective strip of one to three metres on either side of the service must usually be kept clear of permanent structures. For a development site with a water main and an electricity cable crossing the site, the total sterilised area can be significant, reducing the developable footprint.

In our experience, developers who commission a full utilities survey before finalising their scheme design are better placed to manage these constraints. A utilities survey, which typically costs £1,500 to £5,000, identifies the location and depth of all underground services on the site. This information allows the architect to design around existing services or to incorporate service diversions into the scheme design and budget. The cost of diverting a foul water drain typically ranges from £5,000 to £20,000 depending on the length and depth. The cost of diverting a water main or electricity cable is higher, potentially £15,000 to £40,000, and requires the consent and involvement of the relevant utility company. These costs should be reflected in the development appraisal and the facility agreement budget.

Rights of light are a particularly complex form of easement that affects many urban development sites. A right of light is acquired when a window in a building has received natural light for at least twenty years without interruption. The right protects the amount of light received, not the view. If a proposed development would obstruct the light to a window with a right of light, the owner of that window can seek an injunction to prevent the development or claim damages for the reduction in light.

The potential for a right of light injunction to halt a development makes this one of the most significant legal risks in urban construction. The landmark case of Coventry v Lawrence established that injunctions are the primary remedy for rights of light infringement, and while courts have discretion to award damages instead, they are reluctant to do so where the developer has knowingly proceeded with a scheme that infringes a neighbour's rights. For development finance lenders, the risk of an injunction that prevents the completion or occupation of the development is a fundamental concern that must be addressed before funds are released.

The standard approach to managing rights of light risk is to commission a rights of light survey from a specialist chartered surveyor. The surveyor analyses the impact of the proposed development on all neighbouring windows using a technical methodology based on the Waldram diagram, which measures the amount of sky visible from the centre of each affected room. If the survey identifies significant infringements, the developer has several options: redesign the scheme to reduce the impact, negotiate a release or deed of consent with the affected neighbours, or obtain rights of light insurance to cover the risk of a claim. The cost of a rights of light survey ranges from £3,000 to £15,000 depending on the number of affected properties, and the cost of insurance or consent payments varies widely depending on the severity of the infringement. We have arranged development finance for schemes where rights of light costs exceeded £75,000, but the developer had identified and budgeted for these costs from the outset.

As well as managing existing easements that burden your development site, you may need to create new easements for the benefit of the completed development. The most common scenario is where the development site does not have direct access to a public highway and requires a right of way over neighbouring land. Without a legally secure right of access, the completed units will be unmortgageable because buyers' lenders will not lend on properties without guaranteed access. This directly affects the developer's exit strategy and is a critical concern for the development finance lender.

New easements are created by deed, which must be registered at the Land Registry against both the dominant and servient titles. The grant of a new easement typically requires the consent and cooperation of the servient landowner, who may require a payment in exchange. The amount payable depends on the nature and impact of the easement. A simple pedestrian right of way across a neighbouring garden might be obtained for £1,000 to £5,000. A vehicular right of way providing the sole access to a development of twenty units could cost £50,000 to £200,000 or more, reflecting the significant benefit to the development and the burden on the servient land.

The development finance lender will require evidence that all necessary easements are in place before completing the facility. If a new easement is being created as part of the site acquisition, the lender's solicitor will review the terms of the easement to ensure it is adequate for the proposed development and for all future owners and occupiers of the completed units. An easement that is too narrow, too restrictive in terms of permitted use, or subject to conditions that could be onerous will not satisfy the lender's requirements. We always advise developers to agree the terms of any new easements with the grantor and have them reviewed by the lender's solicitor before exchanging contracts on the site purchase. Submit your deal to ensure your access arrangements are structured correctly from the start.

The golden rule for managing easements in a development finance transaction is early identification. Obtain official copies of the title register and title plan from the Land Registry at the start of the project and review them carefully with your solicitor. Identify all easements that burden the site and all easements that benefit the site. Commission a utilities survey to identify any service easements that may not be evident from the title documents alone. If the site is in an urban area, consider commissioning a rights of light survey before finalising the scheme design.

Once easements are identified, assess their impact on the proposed scheme. Can the scheme be designed to accommodate existing easements without affecting the number of units, the building layout, or the sales values? If the scheme can work around the easements, document this in your development appraisal and include any additional costs, such as building foundations that span a drain or providing alternative access routes. If the easements require negotiation with neighbours, diversion of services, or rights of light insurance, budget for these costs and include them in the appraisal as identifiable line items.

Finally, keep the lender and its solicitor informed about easement issues throughout the process. A lender who is told about a right of way issue at the application stage, with a clear explanation of how it will be resolved and at what cost, is far more likely to proceed than a lender who discovers the issue during legal due diligence and wonders what else the developer has failed to disclose. Transparency and preparation are the two qualities that development finance lenders value most highly, and they are especially important when dealing with the complex title issues that easements present.