Airspace leases: property out of thin air


Author: Nick Wood


Nick Wood, Associate, Fladgate LLP (nwood@fladgate.com)


 

Introduction

It is the desire of almost every property investor to make their assets “sweat” by maximising the income available from them. One way investors achieve this is by granting leases of the airspace above their properties. Investors may, for example, lease the airspace to a developer who can help them improve the density of their building by adding a floor or more. Alternatively, the investor may lease the airspace to a tenant who will install telecommunications equipment or solar panels on the roof. This article presents the questions an investor has to ask before embarking on this route, as it is littered with potential issues. It assumes that you are an investor looking to lease airspace to a developer, to improve the density of your asset.

Do you own the air?

There is an oft-quoted (by property lawyers!) and ancient maxim that goes: cujus est solum, ejus est usque ad coelom et ad inferos. In English, this means that the owner of the soil is presumed to own everything “up to the sky and down to the centre of the earth”. This sounds nice, but unfortunately it is inaccurate as regards to airspace. A property owner will only own the airspace to such height as is necessary for the ordinary use and enjoyment of their land. This ownership is meaningful in that it can be trespassed by trees, cranes or projectiles, but it is unlikely to be trespassed by an aeroplane.

In the first instance then, if you own a freehold estate it is likely that you do own the air immediately above that estate. However, the position becomes less clear where this freehold estate is subject to leases or where the estate you own is leasehold.

A recent case illustrates the issues that can arise where leasehold estates are involved. In Ralph Kline Limited v Metropolitan and County Holdings Limited [2018] EWCH 64 (Ch) an airspace lease granted by an owner of property was found to be subject to the terms of an existing lease of premises within the building, because the existing lease’s premises were deemed to include the airspace above the building.

When checking the leases at your property to see if they include the airspace above it, or checking your lease to see if you own the airspace above the property, the entire character of the relevant leases will be considered. If it is for a ground floor flat in a multi-storey building then that leasehold estate is unlikely to own the airspace. If airspace is reserved to the landlord in the rights reserved then again it is unlikely that the tenant will own the airspace. If it is a lease of whole or a long lease of a top floor flat then it is likely that the airspace will be demised. Each case will turn on its facts and legal advice should be sought to procure answers to the question of who owns the “occupational” interest in the airspace.

We own the air, but can we lease it to the tenant?

Assuming that you do own the airspace above the property, there are further questions to ask before you can determine that you are able to lease it to your desired tenant.

Where the tenants of the building underneath the airspace are residential tenants, these include whether or not those tenants have a statutory right of first refusal in connection with any disposal under the Landlord and Tenant Act 1987. A failure by you to make an offer to residential tenants under this statutory right of first refusal can have serious consequences, including criminal liability.

In all cases the title should be checked to ensure that there are no registered third party interests that would prevent a lease of the airspace being granted to the investor’s desired tenant. If there are any restrictions against disposal for instance, these will need to be complied with to enable the airspace lease to be registered at HM Land Registry.

Alternatively if the existing leases at the property have nuisance clauses or grant rights that would prevent any development, these would need to be accommodated or else any development pursuant to the airspace lease would be at risk of being injuncted.

We can lease the air to our tenant, but is it viable?

When it has been determined that the investor owns the air and is able to lease it to their desired developer tenant, there are other questions that should be considered before you instruct your solicitor to draft the lease. In brief, these include rights to light of neighbouring property that you might be infringing by your development, party wall issues, the structural viability of the building you are developing on and procuring planning permission for any development. You will also want to ensure you are employing a quality developer of genuine financial substance, to ensure your asset is improved and not blighted by the works carried out.

How do we document this?

Once you have done your homework and established the viability of granting an airspace lease to your developer tenant, unfortunately the next step is not any easier! There are a number of features of a traditional lease that struggle to marry up with the demands of the drafting required for an airspace lease because traditional leases relate to physical structures. This makes defining the demise, establishing rights of entry for the landlord and drafting alterations clauses, for example, difficult. Bespoke provisions and plans will need to be prepared depending on what the parties intend to do. Other unusual considerations will include the relationship between the service charge of the existing leases and the service charge payable under the airspace lease. These matters will ideally be agreed between appropriately qualified and technically skilled professionals with experience of such matters.

Conclusion

Airspace leases are an exciting prospect for investors who own property in densely populated parts of the country such as central London. However, there should be health warnings that come with them as they are complicated. Getting good advice at an early stage is essential to the success of any airspace lease endeavours.

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