Considerations for converting commercial property into residential housing
12th September 2017
Commercial property development (where commercial buildings are transformed into residential units) is a growing business. An old factory bought for £250,000 and converted into 10 residential units, each valued at £150,000, could net a massive profit for the developer willing to invest in converting the building. With the government actively encouraging commercial-to-residential conversions, and with plenty of old offices, shops, and industrial properties available, it is a smart business to get into.
In 2013 the Town and Country Planning Order introduced what is known as 'Class J' development, which took a lot of the restraints off these kinds of developments. It introduced 'implied permission' for properties being used within Class B1(a) (offices), to be converted into Class 3 (dwelling houses), without the need for full planning applications.
With a surplus of old office buildings and a constant and rising demand for affordable housing, it was seen as a smart move by the building industry, but came up against certain criticism from other quarters who saw it as an erosion of the planning laws.
However, Class J allows developers to make the most of previously unusable and low value property, often in prime central locations. If you are thinking of moving into property development, here are some tips for maximising your success rate and staying on the right side of the law, too.
1. Does the property qualify for Class J development?
There are a number of pinch points that could block your plans before they have even got off the drawing board. While the 2013 Order took the brakes off development for office-to-residential plans, you will still need to check if:
• The property was used within Class B1(a) definitions immediately prior to 2013
• Is not a Listed (grade I or II) building or monument
• Is not part of a safety hazard area or forms part of a military explosives storage area
While you may not need permission for a change of use if the building was previously classified as an office, you will need permission if it was a warehouse or any other kind of commercial building. You cannot convert a building under Class J regulations if it was used for anything other than offices. It is also important to note that some types of offices are exempt from Class J classification, including estate agents or accountants' offices, so double check before you start knocking down walls.
The status of a building is not the only thing that dictates whether it can be converted. One key aspect to consider is access. Commercial property in the very centre of a town may be desirable, but if there is limited access (for example, if it is in a pedestrianised area), then logistics such as getting materials on-site may be challenging. Class J does not mean you have instant permission to get started on a development, and the local authority may challenge the plans based on accessibility issues alone.
3. Change of use versus conversion
While Class J permits change of use without planning permission, the fact that the building has to be converted still means that planning permission may have to be sought. If you need to redesign the layout of a building or extend it then you may need to seek planning permission, even if the building falls within the Class J guidelines.
4. Removal of hazardous material
A lot of commercial property built in the 1960s and '70s has one very big problem ??" asbestos. Its removal and disposal is strictly regulated, and can be extremely costly. If you are a first-time developer then make absolutely sure that you do not have to factor the removal of hazardous material into your costs, or it could effectively wipe out any profit margins at a stroke.
5. Additional costs
Conversions can be subject to additional costs such as the Community Infrastructure Levy (CIL). This is based on the increase in floor area (and can be payable even when there is not an increase). CIL is designed to generate income for local authorities to put infrastructure in place that will help the development of communities. It is advisable to double-check as to whether your conversion is subject to CIL by talking to your solicitor and local planning authority.
6. Covenants and deed guidelines
Even if your building seems to tick all the right boxes for a commercial-to-residential conversion, it is essential to thoroughly check the property's title deeds to make sure there are no covenants restricting a property's use to purely commercial operations (which is often the case with old inns and pubs), or that make its conversion into residential property impractical. With older properties in particular, it may be worth asking a conveyance specialist to dig back through the records and ensure that your 21st century development is not going to be ruined by an obscure clause written a hundred years ago.
Web site content note: This is not legal advice; it is intended to provide information of general interest about current legal issues.
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