Online exclusive: The development predicament

Three initiatives designed to curb legal challenges against property developers could have an unintended consequence on insurers operating in the market.

In recent years a number of insurers and brokers have started to provide policies designed to cover against some of the risks involved in the property development process. Policies including rights of light insurance, judicial review insurance and town and village green insurance have grown in popularity.

The prime catalyst for their growth has been the increase in third party challenges to development schemes which have been launched when for example; interested third parties are keen to prevent development in their own backyard, supermarket groups that are anxious to protect either their existing stores or proposed new stores and want to challenge what their rivals are up to; or individuals simply looking to protect the value of their properties.

However, over the past couple of months the government has published a number of proposals in terms of legal changes which, if implemented, could either impact the risk underwritten by these new products or reduce either the real estate sector's need for a policy or the chance of a claim.

Judicial Review

Late last year, the government published a consultation paper seeking views on changes designed to curtail the rising numbers of applications for judicial review.

Across a range of sectors, the government has seen judicial review challenges rise from only 160 in 1975 to 11,200 in 2011. Only 191 of the latter were in relation to challenges to decisions of planning authorities. The majority relate to the asylum and immigration sectors.

Nevertheless, judicial review insurance is something which some developers or funds look for on development projects to cover the risk of a third party challenge to a planning consent.

The main proposal in the consultation paper is reducing the existing three month judicial review period to one of six weeks to be consistent with the judicial review period for decisions of the Secretary of State on planning appeals.

If the government's objectives are met in terms of reducing the number of challenges, this could impact upon the need for judicial review insurance (although conversely some may argue that by reducing the period, the government is increasing the risk of a judge allowing an out of time claim).

Protecting the village green

A further concern to brokers and underwriters in the sector relates to village green registrations. The media has reported widely about the increasing number of applications to protect village greens with housing developers claiming that changes have been made to try and frustrate the development process.

Local communities have in turn insisted that these are genuine applications for people who have used land for community purposes.

There is no doubt that the number of applications has increased and in some cases registration of village greens has prevented development even after land has been acquired by the developer and planning consent granted.

As a consequence, insurers offer a product to cover the potential risk of village green application and again, Whitehall developments could be set to move the goalposts.

The recently published Growth and Infrastructure Bill contains proposals which go a long way to help the development industry. If enacted the affect of the Bill will be that it would not be possible to apply for registration of a town or village Green where planning permission has already been granted or applied for and publicised. It would also not be possible to apply where the local planning authority has already identified the land for potential development as part of a local or neighbourhood plan.

A second proposal would also allow landowners to continue to allow local residents to use land but without fear of this then triggering registration as a town or village green.
There are a lot of details still to be worked out but if the legislation is passed as currently envisaged, this could significantly affect the need for the type of insurance.

Rights to light

The third of our trio is also a highly publicised area of dispute between developers and the parties overlooking a project. Those parties can make ‘rights to light' challenges and we have as a result witnessed a marked increase in interest for rights to light insurance.

While this is not a government led initiative for insurers this is certainly one to watch for the future. The Law Commission is expected to publish a consultation paper in early 2013 which will investigate whether rights to light law provides an appropriate balance between the interest of landowners and the need to facilitate development. It would also look at the relationship between rights to light and the planning system. If following the consultation exercise it is decided by the Law Commission that there do need to be changes to the law, it is anticipated that a final report and draft Bill will be published in early 2015.

These niche insurance policies have proven to be useful for brokers and insurers working in the property development sector and it is clear that Whitehall's decisions could have a material effect on the market. If all of these proposals are followed through on, insurers may find there is simply less appetite on the part of the developers (or, perhaps more importantly, banks and funders) to take them out so it will be essential to monitor the legislators carefully.

Mark Heighton, head of real estate, CMS Cameron McKenna