Extension of Permitted Development Rights

At the end of last month the Government announced a number of changes to permitted development rights, including allowing the change of use from offices (Class B1(a)) to residential (Class C3) without the need for planning permission. The intention of the new scheme is to make best use of existing developed sites and facilitate speedier conversion of redundant office space into desirable residential accommodation.

The changes are expected to come into force in the Spring of 2013 and will initially apply for a period of 3 years, although the Government is to give further consideration to whether the new rights should be extended indefinitely.

The changes should make things easier for landowners and developers, not least because change of use from offices to residential will not require a full planning application, which can prove to be a long and expensive process. Furthermore, the requirement to provide affordable housing only applies if an application for planning permission is required and consequently, substantial office buildings could be converted to residential units without any affordable housing provision or contribution.

However, although no planning application will be necessary, any such change of use will be subject to a limited prior approval notice covering the impact on transport and highways and development in high flood risk areas, on contaminated land or in safety hazard zones. It should also be noted that if any works are required in connection with the change of use under permitted development rights that affect the external appearance of the building, a full planning application will nevertheless be needed, so developers should consult the local planning authority before commencing any such project.

There are other potential hurdles. For instance, where the property to be converted is leasehold, it is likely that the landlord’s consent will be required not only to carry out the works but also to change the use permitted by the lease. If the lease provisions do not provide that the landlord’s consent is not to be unreasonably withheld, the landlord may seek to share in any profits by demanding a premium for the grant of consent.

Where the intention is to convert only part of a building and to mix retail or office with a residential use, consideration must be given to the differing requirements and expectations of commercial and residential tenants. One must also remember that service charges payable by residential tenants are subject to tight statutory controls and this could potentially create a complicated two-tier service charge regime for the landlord. Where a building already comprises a residential part and the intention is to change the office element of an existing mixed-use to residential, one should be aware that this may result in residential leaseholders acquiring the right to purchase the freehold under the Leasehold Reform Housing and Urban Development Act 1993 following the conversion.

On transactions where the consideration exceeds £1m, stamp duty land tax could be payable at the higher rate applicable to residential property of 5%, 7% or 15%, as opposed to 4%.

Finally, local authorities had until 22 February 2013 to seek an exemption for specific areas where there are exceptional circumstances, namely where the exercise of the new right would result in the loss of a nationally significant area of economic activity or cause substantial adverse consequences which are not offset by the positive benefits. It is understood that several London Boroughs have sought such an exemption and it remains to be seen how many will succeed. Even if they fail, they may still restrict the application of permitted development rights through an Article 4 Direction.

The reasoning behind the new scheme to extend permitted development rights to the change of use from offices to residential seems sound and, on the face of it, an obvious solution to the current excess of unutilised office space and the shortage of housing stock. However, whereas it may present great opportunities for landowners and developers, there are a number of potential pitfalls and hurdles to overcome.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 020 7404 0606 and ask for your usual Goodman Derrick contact.