Commercial property re-development (where previously commercial buildings are transformed into residential units) is a current growth area. For example, a run down old factory site could be purchased for say, £250,000 and (subject to the usual planning obligations) converted into 10 residential units, with an estimated value at £150,000 each. This could provide a potential profit for the developer or investor willing to invest in converting the building. With the government encouraging commercial to residential conversions, and with a good supply of old offices, shops and industrial properties up for grabs, the prospects are good.
In 2013 the Town and Country Planning (General Permitted Development) (Amendment) (England) 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 good supply of old office buildings and a constant and rising demand for affordable housing, it was seen as a smart move by the building industry. However this has attracted certain criticism from other quarters who saw it as an erosion of the planning laws and from those concerned with the building regulation demands.
This being said Class J allows developers to make the most of previously unusable and low value property, which could hold prime central locations. If you are considering a move 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’ve even got off the drawing board. While the 2013 Order took the brakes off development for office-to-residential plans, you’ll still need to check if the property:
- was used within Class B1(a) definitions immediately prior to 2013;
- is not a listed grade (grade 1 or 2) 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’s 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, it’s in a pedestrianized area), then logistics such as getting materials on-site may be challenging. Class J doesn’t 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 vs 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 used a material which was later found to be very dangerous and requires considerable care and control: asbestos. Its removal and disposal is strictly regulated, and can be extremely costly. If you’re a first-time developer then make absolutely sure that you don’t have to factor the removal of hazardous material into your costs, or it could effectively wipe out any profit margins.
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 isn’t an increase). CIL is designed to generate income for local authorities to put infrastructure in place that will help the development of communities. It’s advisable to double-check whether your conversion is subject to CIL by talking to your solicitor and local planning authority.
6. Are there any restriction covenants?
Even if your building seems to tick all the right boxes for a commercial to residential conversion, you must spend time looking at the property’s title deeds. It’s essential that you engage a solicitor to check thoroughly 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. Your solicitor will be able to assist you with the agreements to be put in place with utility suppliers and guide you through the development agreements.
The funding arrangements will also need to be carefully checked and put in place. Your solicitor will be able to advise upon the implication of the documents and what can be the extent of your liability.