Changing office use to residential – headaches on the road to conversion

26 November 2014

Permitted development rights (PDR) introduced by central government in May 2013 allow a change of use of an existing B1(a) office building to C3, dwelling houses, without the necessity of obtaining planning permission.

The idea that derelict and redundant office space could so easily be turned into attractive and much needed new housing stock ought, superficially at least, to be a vote winner – especially with developers. Not so it would seem with local planning authorities (LPA’s), many of which are concerned that PDR will have an adverse effect on the availability of office buildings in their locale and that the shortage of good quality office stock could render some businesses ‘without a home’.

It is not all plain sailing for developers either. The time limitation of PDR could be a factor in the lack of implementation of many schemes. Research by the agents, JLL, suggests that of 120 notified schemes in the capital consisting of more than 20 units, work has started on fewer than 10 of these. As things currently stand, there has to be an actual residential use following the conversion by no later than 30 May 2016, failing which the LPA could, presumably, take enforcement action. Time is clearly running out, particularly for large schemes still to undergo the notification process to the LPA.

There is currently little guidance from the Department of Community and Local Government (DCLG) as to what the planning status of a scheme would be if it is not completed by the May 2016 date. For instance, what if most of the units within a building are converted and in residential use before this date but some are not? Will that mean the entire scheme is subject to enforcement or just those units that have not been completed? What if all the works are substantially completed before the deadline date but the residential use has not commenced by then? Simply selling flats “off plan” and carrying out minimal works will not suffice. However where residential units have been completed but not sold then logically, it ought to be possible to achieve compliance by granting a 6 month assured shorthold tenancy.

The power of an LPA to interfere with PDR is limited. The developer is required to give to the LPA prior notification of the proposed conversion and the LPA then have eight weeks to consider the impact of the development, but only in relation to the specific issues of contamination, flooding, transport and highways. LPA’s do not have the ability to insist on delivery of social housing within a PDR scheme nor to require that the developer enters into a section 106 agreement. However, where the LPA has in force a charging schedule under the community infrastructure levy (CIL) scheme, then there could be an obligation on the developer to pay CIL.

PDR does not apply to buildings with an exempt business zone status. LPA’s in London such as Islington and Lambeth, have been taking steps to limit the impact of PDR by challenging decisions of the DCLG to remove business exclusion zone status to key districts within their boroughs. Increasingly worried LPA’s are reverting to the use of an ‘Article 4 Direction’ as a last line of defence. This is a potentially powerful weapon which would allow an LPA to withdraw PDR across a defined area.

Developers cannot afford to be complacent if they are to be successful and they, and their lawyers and other professionals involved in the scheme, need to do their homework. Apart from the prior notification process referred to, consideration will need to be given to the following;

  • If the conversion requires changes to the structure or the external appearance of the building then planning consent may well be required.Care should also be taken to check the existing planning consent for the office building to ensure that it does not contain a condition that would prevent or impede conversion to residential use.
  •  Is there an Article 4 direction in force?
  •  Is the building listed? If it is then PDR would not be applicable.
  • Crucially, can the conversion works be carried out and the residential use brought into effect by the 30 May 2016?

There will undoubtedly be legal challenges ahead from both developers and LPA’s as clarity is sought on some of the issues raised in this article. I would hope that guidance will be available in due course particularly for buyers who may be concerned as to whether or not their homes could be subject to enforcement action. A consultation on extending PDR or even making it permanent has recently been closed and the results of this are expected soon.

However, with the advent of a general election in less than 6 months, this may not be a priority issue. The DCLG have hitherto been reluctant to offer any meaningful clarification and until proper guidance is issued and some of the big questions answered, the likelihood is that developers will prefer to take the safer route of seeking a consented scheme for residential use and thus avoid the headache of uncertainty.

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