Rob French, an equity partner at Delva Patman Redler, tells us about the unique issues arising with digging basements next to basements and provides practical advice to surveyors confronted with these problems.

You can also watch this interview in video format here.

Transcript

Philippe: Hi, and welcome to another edition of Party Wall PRO, the podcast. I’ve got Rob French with me today from Delva Patman Redler. He is an equity partner there. And he is here to talk to us about basements. 

So Rob, tell me about the excitement behind basements. You hear all the time these basements in Mayfair and stuff, these crazy things that have been dug out. And you’ve – so you’ve prepared a presentation that you’ve given at the London branch of the Pyramus and Thisbe Club and I think you’re going on tour over the next few months? I’m quite excited about this because it’s obviously a subject matter that people are interested in. 

So I think this time it’s going to be more kind of lecture style because of course you’ve got your material. You’ve got your slides that hopefully we will be able to put into the podcast. So I’ll leave the floor to you. 

Rob French: Thanks a lot. We have been doing basements for quite a while. But now we have got a new situation where, because we’ve done so many basements, we are doing basements next to basements now . So basements next basements brings in a new set of skills and a new set of legal implications and possibilities for dispute that we are now dealing with more and more. So this presentation goes through the standard issues with basements but also a lot of the intricacies where we deal with basements adjoining existing basements. 

I’ve tried to split this into key issues that I’ve come across and also the issues that I foresee will play out in the future. So some of this is based on issues I have dealt with and some are purely speculation of what I feel further court cases might be. 

So the first issue is enclosure costs with trimming overspill and trespass. The situation here is that where we agree an award where there’s a basement already done to one side and then the adjoining owner wants to excavate their own basement within that award there will be enclosure costs under Section 11(11) of the Party Wall Etc. Act 1996. So they will usually be agreed by the surveyors upfront and included in the award. 

And then when the – what used to be the adjoining owner now the building owner, excavates down, they find that the underpins have extended further into their property than what they expected either due to poor back shuttering, concrete overspill, or other  various reasons. But they then find themselves faced with having to trim those underpins and/or set back the wall of their basement. Usually, they will opt for trimming because the floor area where the basement is undertaken is, obviously, key. 

What the building owner, the one now undertaking the work, usually likes to do is to suggest there’s a setoff that takes place between the costs of trimming the overspill against this Section 11(11) costs agreed. But the problems start to rise where technically and legally, you can’t actually do that because there’s no right of setoff. As soon as the enclosure is made on the underpins, moneys are owed so the adjoining owner can enforce the award to achieve those payments. So trying to explain this to the building owner that they have to pay out even when they are at loss due to trimming is quite difficult. 

There are other issues as well that go along with this and that is that the now building owner assumes that the tribunal of surveyors can deal with the costs. But actually, they can’t under the Party Wall Etc. Act 1996 Section 2.2. the surveyors can give the rights to trim this trespass but there’s no mechanism to award those costs against the adjoining owner. 

So the only way that you can actually claim costs is to go back to the original tribunal of surveyors that actually installed the underpinnings, so the people that actually awarded the underpinnings to be cast. Tracking down that tribunal could be difficult. And even if you do track them down, you have to then convince the owner at that time – considering they might have sold the property on, that they are liable for those costs. And obviously, you have to convince them to pay without having to go legal and take them to court. 

In relation to that last issue there is a very old case going back to Selby v Whitbread & Co that set a precedent that the obligations under an award stay with the original owner that undertook the works but the benefits wear out. Paying out for the cost of the trimming can be seen as an obligation but it needs to be properly tested in court and a solicitor’s opinion would be beneficial. But my understanding is that the obligations stay with the original building owner. So you may have to track them down.

Philippe: So what’s your obligation as the surveyor to find the original building owner who is now the adjoining owner. I imagine it can be difficult, right? 

Rob French: Yeah, tracking down the original tribunal because we all – so that we usually know each other that it’s usually fairly easy to track down the original tribunals of those. But tracking down the original building owners is likely to be very difficult because there’s no real mechanism to find them once they’ve sold the property and moved on. So it can be really difficult.  The only other possibility is to find out who the contractor was who did the works. And if you can prove that they’ve deviated from the specifications then technically you could potentially go after them for nuisance and negligence because the trespass occurred because they haven’t followed the details in the award and the method statements. So I have seen a contractor successfully sued once for trespass. 

The other issue is the limitations period. I think a lot of surveyors make the mistake of thinking that if the basement was done either 6 or 12 years previously then their right to claim for trespass has expired because of the limitations period. I had a job where we actually got counsel’s opinion and the opinion was that the limitations period starts when the trespass is discovered.

So in this situation, the best thing to do is to check the original award. If you can’t find the award and if you believe there wasn’t ever any award for the underpinning, which, unfortunately sometimes happens or you know there was an award but no one has a copy so you can’t find it, then your only remedy is, unfortunately, common law so you can’t deal with this under the Party Wall Etc. Act 1996 at all. 

If you can find the award, the first thing to do is to check the actual underpinning details to make sure that what your appointing owner is suggesting is a trespass, is actually a trespass under the award because we see many awards where the underpins are extrinsically loaded but the award shows that the underpins then out to the end of the corbel on the adjoining owner’s side. So when that adjoining owner then becomes the building owner and digs down, they’re likely to be upset that they have a lot of concrete coming all around at the end of the corbel into their land. But if the award originally omitted that, then there’s no recourse against the details in the award because that was awarded.

There may be an ultra vires claim that the surveyors didn’t have the jurisdiction to award that trespass. But again, that would be an appeal ultra vires of an award. It wouldn’t be something the surveyors could resolve. 

The practical advice to move this issue forward, the best thing to do is to explain to the parties just how complicated this is and how it might not be adequately resolved under the Party Wall Etc. Act 1996 if you can’t find the original tribunals or original building owner. And so explaining the complications and suggesting that they basically work together to agree a setoff payment against the cost of the 11(11) enclosure costs set off against the cost of the trimming. And as long as both parties are reasonable and they agree a reasonable cost for trimming, there’s no reason why they can’t in an exchange of letters agree a setoff amount to be paid in consideration of the trimming. 

And then if the original building owner wants to then track down the contractor and make a claim against them then go and so be it. But if they can make that agreement then the payments could be made and hopefully the issue is put to rest. 

Philippe: How likely is this to happen? 

Rob French: It’s very common. When a contractor actually digs down, they are digging underneath the party wall and haven’t actually got sight of the adjoining owner’s face of that party wall, so they are purely just going off measurements as to how far they feel they need to dig under. So if the award, which should quite rightly say that the foundation should be in line with the adjoining owner’s face of the party wall, they are digging under blind to try and find where that face of the adjoining owner’s wall is. 

And then contractors used to – from my experience, be quite bad with either back shuttering or casting the rear face of the overspill. 

Philippe: OK. So it’s going be a common occurrence. 

Rob French: yes 

Philippe: And how likely is it that the building owner and the adjoining owner agree on setting off these costs?

Rob French: As we all probably know, as surveyors, for some reason neighbours do like to fall out. It would seem obvious to everyone that a reasonable approach is agreeing a reasonable cost for the trimming and then putting that against the set off. It would seem very sensible and I have seen it a lot of times resolved in that way but I’ve also seen a lot of the time it got legal because the owners just cannot agree. 

Philippe: Yes. 

Rob French: So yes, unfortunately it is a common dispute. 

So, that’s the first issue. 

The second issue is security for expenses. The common issues with security for  expenses are (i) what can you hold it for and (ii) how much is reasonable to hold. 

I think all surveyors agree that the main purpose of security for expenses is to protect against abandonment of the works in order to back fill the basement. Some surveyors believe it’s to finish the underpins or just to make safe where the developer unfortunately abandons the works. So I think everyone agrees that. 

Not everyone agrees that you can hold it for repairs to the adjoining owner’s property. My view is that if there’s a reasonable risk that damage could be caused to the adjoining owner’s property then it is reasonable to hold a suitable sum in security. 

The status of the building owner is obviously the big consideration as well. If it’s a joint venture or an offshore company that could potentially fold overnight then I think it’s entirely reasonable to have potentially a larger security for expenses sum to protect against abandonment. And again, if there’s risk of damage then if there’s damage caused and then the building owner disappears then obviously there is a legitimate loss and therefore holding a reasonable sum in these circumstances is beneficial. 

The level of risk is obviously another big consideration. We are talking about basements here and basements pose the largest risk to an adjoining owner’s property out of all the works that fall under the Party Wall Etc. Act 1996 and therefor with basements you are going to find security for expenses most commonly requested and probably achieving the higher sums. 

Another item that’s always disputed is released terms. I’ve heard a lot of surveyors say that the security sum should be held for a long period of time even after the basement box and the lateral strain is completed. I’ve had many different engineers confirm that it is unlikely that there will be any more movement after the main basement box and lateral strain is installed. So my view is that holding for a year or even sometimes 18 months after the basement box is completed is not reasonable. I think the lion share of the security for expenses should be released once the basement box is in. 

How the security is held is another issue. There is now an insurances on the market. I have worked with an insurance to develop an insurance policy. The first thing I said when I met with the broker was that the policy would not work unless it pays out when the surveyors make an award and he reassured me that that was in essence the crux of the policy: that it pays out instantly on the surveyors making the compensation award. 

So the policy I believe works and I think it is going to be used more and more now. It commonly costs between 1-3% of the cost of security agreed and it is a good policy. 

The other way is escrow company: Security for Expenses Limited (https://www.securityforexpenses.co.uk/) is one. They are very good and cost effective and usually building owners are happy to put the money into those accounts. I think if it is very large sums and then the security of that account probably needs to be checked. But I’ve never had a problem using it and it is a very good process. 

Philippe: Yes, Security for Expense Limited are regulated by the FCA as well. 

Rob French: It is, yeah. 

Philippe: It has to be. Yeah. 

Rob French: So I never really looked into it because I’ve never placed any real substantial sum into it. I guess in the event of that account being hit with fraud or anything like that, I guess that needs to be looked into. And at some point, I’m sure a building owner will look into that to reassure themselves that their money is safe in that account. 

I did have one adjoining owner place half a million into security for expenses limited and they’d done some checks and they were more than happy that the process worked with security for expenses limited. It seems to be a very good process. But the point here I’m trying to make is we should recommend that the building owner needs to make their own checks so that they are happy with putting money in there really to protect ourselves. 

The other way that you can hold it is bank account as well which is ring fenced in the bank account. I’ve seen that done. Again it seems to work very well. The bank account is authorised not to release the funds unless it’s in line with the terms of the award. But that depends on the bank and whether the bank is willing to follow that process. 

Solicitors used to hold security but not so much anymore following the money laundering laws. So the solicitors now are not really too keen on holding security sums. 

And as a practical advice on security for expenses is to educate the building owner that even if they are placing money into an escrow account, it’s still their money and they would have to pay that out. If they caused damage to the adjoining owner’s property, they are still going to have to pay for that damage whether it’s out of the security account or if it’s out of their own account. 

So they are not in any greater risk of having to pay out compensation if the money is held in security. So they still got the same level of risk. And now with the insurance policies they might find a way that they can provide security for a reasonable sum without actually having to lock up that money. They should really consider it. 

It also reassures the adjoining owner that there is that money available and that this scheme is well-funded and there is that ability to make safe that property or make the repairs if damage is caused. So it can help relations as well. 

If it’s a reasonable request for security, ultimately even if it goes to the third surveyor, it has to be agreed. So the more the building owner resists it and tries to justify it, it’s just going to cost money and fees. So sometimes the best thing to do is if it’s a reasonable request, you should agree to it and agree that you can hold it in escrow or through an insurance policy as soon as possible.

And so I think that’s the practical approach. You just have to explain it in details to the building owner. The other is when the adjoining owner requests ridiculously huge sums, they need to be educated to say that it doesn’t cover for the worst case scenario. It is just there for abandonment and, potentially a small amount of potential repairs. 

I’ve seen some huge, huge requests for security which just makes – if everyone had to pay these huge sums into escrow every time they wanted to do a development, it would make developments unfeasible. It’s not – we need to be sensible. 

The next issue is reinstatement and diminution in value. This issue basically has everyone’s attention since the case of Lea Valley Developments Ltd v Derbyshire. What happened was, there was buy-to-let property owned by the adjoining owner and the building owner obtained an award to excavate adjacent to that property where there four individual flats within that property. 

Unfortunately with the excavations, the adjoining owner’s property slipped slightly into the excavation and caused so much damage that all of the tenants had to move out. And the only real remedy was to rebuild the property which was very substantial. 

So the difference between rebuilding and just the diminution in value of the size of the development project was huge. The adjoining owner’s surveyor was claiming for rebuilding and the building owner’s surveyor was claiming that it should just be a calculation of diminution in value. And that wasn’t the actual point that was decided in court. What was decided in court was actually the right of the surveyors and third surveyor to make a determination on that point. 

The court case decided that the surveyors did have the right to determine that point and so it went to the third surveyor. And the third surveyor decided that the actual true and proper means of calculating the loss was: diminution in value plus the costs required to put the building owner back into the position that they were in when they had a buy-to-let property with all flats rented out and in good condition. So it was almost like a diminution in value PLUS calculation. That closed the gap between rebuilding and diminution in value. It closed it down enough that the third surveyor’s award wasn’t appealed. 

But there is going to be a point where there’s such a big gap even with the diminution in value PLUS exercise that it is still going to be worth taking it to court.

So I think we are going to see this issue arise again and likely probably tested in the courts. I think the only reason why the diminution in value argument was considered was because it was a buy-to-let property, so it was an investment property. I think all surveyors will probably agree, where it’s a residential property, you can’t argue that it’s diminution in value because it might be a family home and you can’t use that process. The only exception to that rule was the case of Brewer v Leccacorvi. In this case, the adjoining owner admitted that she was going to sell the property and therefore the building owner quite rightly said: your loss is only diminution in value then because of, at the point of sale, it is only a reduction in the value of the property. 

On appeal she said that she might not sell but it was proven that she was because I think the adverts on Rightmove and the estate agents popping around, didn’t help with anything. 

So the advice to an adjoining owner is: if you are thinking of selling then it’s not really good to be vocal about it if you’re in a situation where there is damage. 

Obviously, that’s a unique circumstance. So I think that  reinstatement and diminution in value is likely to come up at some point in the future. Now, that everyone is aware of that argument. 

The next issue is pile perimeters. And the issue here really is the verticality – so to get access under the Party Wall Etc. Act 1996, under a line of junction notice, you need to be building right up to the boundary or on the boundary. But if you need to take account of verticality of the piles then it can be argued that if you are building right to the boundary then it’s possibly 50/50 as to whether the piles are or aren’t going to deviate onto the adjoining owner’s land. I say 50/50 because I think the pile is always going to go slightly out of line. It’s probably unusual that they go straight. 

And so you can then set the piles back but then, if you set them back a certain distance, I don’t think you can argue that it’s a valid line of junction notice. And I’m guessing the distance is about 50 millimetres. If you are further away than 50 millimetres, you are not building on the line of injunction. So in essence, that’s the crux of the argument there. 

The risks involved with deviation of piles was explored in the case of Gray v Elite Town Management. And this was retrospective, this is where an adjoining owner dug down to the basement and found that historically, the building owner’s piles had deviated into the adjoining owner’s land and they needed to trim the piles. It’s a real risk. It certainly can happen. 

The other considerations with pile perimeters is basically whether the actual piles themselves are a wall under the Party Wall Etc. Act 1996 which then bring access rights with them. If they are there to create a basement, my view is that they can be considered  walls because they are retaining walls. But it is case-specific. It depends on the structure above. It depends on the position of the pile cap, the location on the boundary etc.

So really, the practical advice here, is that you really do need to look into the details to establish what the foundation is and what the superstructure wall is to try and establish whether the piles do or don’t constitute foundations under the Party Wall Etc. Act 1996 and it will therefore dictate what access rights you have. 

So it’s difficult to give advice without seeing the whole arrangement re piles, pile caps and superstructures. But you need to be aware of the issues surrounding access if it’s right up to the boundary.

The other issue with piles that we see now on the premises is screw piles. Screw piles tend to be used now more and more often. And I’ve got a case at the moment where it’s proposed that screw piles be used to underpin the party wall. Basically the screw piles go in and then the top of the screw piles are set within an underpin. So that raises the question, is the area where the screw piles projecting into the underpin, the mass concrete underpin, is that special foundation. My view is that it’s not but you can see that it could be a question as to whether that is a special foundation or not. 

The lifespan of the screw piles also comes into question because they are only designed to last around 50 years. So if the building is to last longer, then the lifespan of the screw pile comes into question. So I think that’s an issue we are going to see and more now, is screw piles being used as part of an underpinning process.

The next issue is inconvenience and unnecessary inconvenience. 

Section 7 (1) of the Party Wall Etc. Act 1996, forbids unnecessary inconvenience but then 7 (2) which is the section for compensation basically suggests that you can – that compensation could be paid. So that implies to me that you can actually cause inconvenience. So there’s an overlap there. There’s an overlap between what you understand to be unnecessary inconvenience and what you understand to just be inconvenience because one is permitted and the other one is not. 

And obviously, the owners take extreme views. The building owner will say, “I have the right to cause inconvenience, it’s an enabling act and therefore I can undertake these works.” Whereas the adjoining owner will take the view that, “why should you cause me any inconvenience at all?” The cost always basically revolves around alternatives. The building owner will not want to put any extra cost whereas the adjoining owner will say, “unless you undertake these works in a way that causes me the absolute least inconvenience possible then by the very definition, it’s unnecessary inconvenience.” But we are talking – we could be talking hundreds of thousands of pounds to undertake the works  in a different way just to limit the inconvenience. So as always, it’s going to come down to reasonableness. 

And the point to remember here is that the surveyors can’t guide the design. That came up in Gray v Elite Town Management as well where the judge criticised the adjoining owner’s surveyor for trying to influence the design. So we can suggest if there’s too much inconvenience or even that we believe it’s unnecessary inconvenience but we shouldn’t really be seen to be leading the design. 

So as the sort of practical advice, as always it comes down to making sure that the parties understand the positions. The extreme views are I would imagine not going to be welcomed by the third surveyor and they are not going to be welcomed by the judges. So, a balanced approach is key. Obviously the solicitors and barristers will very much entertain extreme views. But as surveyors, we need to resolve these issues so we need to be reasonable. 

The next issue which follows on from the last, and it’s how much damage risk is acceptable. 

So I think we all revert to the ground movement assessment and we look at the BRE guide for cracking and we look at the amount of movement or cracking that we believe is reasonable to risk the adjoining owner’s property. And I think as long as it is a minor risk then I believe it’s likely to be acceptable. No one is going to accept a risk that’s going to cause large cracking but if we are in the slight or very slight end of the scale of movement or cracking then I think it’s reasonable because otherwise you’re going to prevent all development. 

The issue again comes down to the extreme views of the adjoining owner saying, “Well, how is it possibly reasonable that you cause any damage whatsoever to my property?” And I think the answer to that is  – if the works were definitely going to cause damage then I don’t think that is agreeable and I don’t think we have jurisdiction to award that. But if it is a risk, I think that is under our jurisdiction to say, “it’s an acceptable risk.” And the Party Wall Etc. Act 1996 is there as a mechanism to get compensation if that risk is realised and there is damage. 

So again, it always needs to be a reasonable view on these terms. And educating the owners that their extreme view is not what the Party Wall Etc. Act 1996 had in mind is important. 

One issue that I felt quite strongly about under this is, when an adjoining owner’s surveyor requests monitoring and security for expenses of damage. Because if you are real-time monitoring someone can go in immediately and stop the movement as soon as it’s discovered. Then potentially, you’re not going to have a situation where too much damage is going to be caused. So I think if you are requesting real-time monitoring and also higher security for expenses for damage costs I don’t think the two are complimentary because in essence, they are covering the same risks. I think that needs to be considered. 

The next issue is 2-stage underpinning. The reason I raise this one is because I’ve got a personal experience with a 2-stage underpinning process going horribly wrong. We were ask to cover a job to replace a building owner’s surveyor where damage was caused in the middle of some basement works. And with the help of the engineer, we quickly worked out that what had happened was that the ground during the first stage underpinning had not been tested to any great extent. So whilst the formation level at the bottom of the second stage underpin had been tested and it was known the ground was good at that level, the first stage, the soil wasn’t very good. And so when the first stages went in, the party wall started to drop. This also wasn’t helped by the fact that spine walls and rear wall had been removed so the weight on the party wall had been increased. 

When we went in, after the second phase had been completed, and undertook an inspection, we also found no evidence that there was a heel or a toe because there was no cutting off at the bottom of the first stage underpin, which you would see if a toe had been cut off. We also asked for the core poles to be drilled through at the bottom of the first stage to discover the thickness  to see if there was a heel and toe. And we proved that there was not. 

So in essence, the contractor had taken a wall that was bearing onto the whole width of a full party wall brick cobbled footing and reduced it to just to fit the party wall. So it was inevitable that the wall was going to drop. 

The mistake that was made in this job was that the adjoining owner’s surveyor as soon as there was movement asked for everything to stop and actually got a third surveyor determination that works must stop and I argued that that wasn’t the best thing to do because if the ground at the bottom of the first phase is unknown, it was better to complete the second phase and basically, get down to the level that was known to be good ground. So that case is going on at the moment through the courts. And so, it should be quite interesting. 

But I think 2-stage underpinning is used a lot and it does create more risks I think in certain circumstances. So it’s not always the right answer. I think it’s – some surveyors prefer it but there are risks involved. 

And the last issue is the implementation of the Bailey Rail (Chaturachinda v Fairholme). Judge Bailey gave his view in this case, he did make the point that he felt that the mass concrete underpinning, the Bailey Rail, had not been needed in the interim or the final design that he would have awarded the case differently because if he thought that if it had been there just to purely circumnavigate the Party Wall Etc. Act 1996 that he wouldn’t have entertained it.

So the mistake that I see being made is where the design team doesn’t include the Bailey Rail and then if consent is then requested from the adjoining owner to give consent to special foundations, if it’s refused then as a knee-jerk reaction, go back to just installing the mass concrete underpinning. 

So my view is that the process, it shows that the mass concrete underpinning is just not required and it purely is there because special foundations was dissented. So my view is that what we should be doing is making sure that the Bailey Rail is in the original design, making sure that it serves a purpose and that it is needed. And then if there is an indication from the adjoining owner that they will get consent for special foundations then you look at the scheme and decide if it is worth removing that mass concrete underpinning and doing it in a different way.

But I think the other way is fairly dangerous and we could see cases on the Bailey Rail going to court again on the basis that the underpin was put there purely just to circumvent the Party Wall Etc. Act 1996. 

That’s all the key points that I see. 

Philippe: So it looks like being involved in basements, for surveyors, is likely to become more and more litigious. They are going to become more and more complex. And so, you will have less and less people really wanting to get involved in basements. 

Rob French: I agree. I think if you’ve got a building owner who has enough money to afford a basement, then if things do occur and they are not happy, they probably also have enough money for litigation.

I think the other thing with basements is that people get very passionate about people digging massive noisy holes next to their property. So you will find that with just a simple mention of someone doing a basement already sets emotions running and people already naturally just opposed to it. 

And so, you find a sort of domino effect of everyone being against basements especially when – the most common sort of complaint is that you can’t live in a property where there’s basement being built. So the building owner is off somewhere else not having to put up with the disruption and the adjoining owners are obviously living next door. The common complaint is always that the building owner just doesn’t as they are not living there. They are not having to put up with the inconvenience. 

So emotions always tend to run high with basements, which is understandable. 

Philippe: Yeah. It is a lot of education to be done from your part I imagine on those parties to just make sure that it doesn’t kick off. 

Rob French: Yes. We are here to resolve disputes ultimately and that’s what we should remember. So yes, we are there to explain the situation to the parties. They might not like the situation. Adjoining owners might not like the extent of their rights but ultimately we are there to educate them on that so I steer them away from disputes that can cost them a lot of money. 

Philippe: So maybe it’s actually advising the building owner to pay for the adjoining owner to go on holiday for the year. 

Rob French: I’ve seen that situation once because the adjoining owner was so opposed to the basement that I think the building owner got some good advice and just thought it’s probably going to be cheaper if he sends him on holiday for a year. 

Philippe: Well, that’s a great way to finish this subject. Thank you.

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