Change Of Use & Permitted Development Rules

On 30th March 2021, the Town and Country Planning Order 2021 was made.

This inserts class MA, which is commercial, business, and service uses, dwelling houses into part three, amongst many other changes.

The new Permitted Development Rights will come into force from the 1st August 2021.

Jamie, one of the more difficult questions I’m probably going to ask you, but can you help us put that into layman’s terms and explain how Permitted Development Rights changed over the past few years?

– First of all, I think you just reminded me why I never became a lawyer! That is why we’ve got a compliance department that helps with those legal contracts.

So what is Permitted Development?

Well, Permitted Development Rights are automatic grants of planning permissions. So this allows you, again, in layman’s terms, to do certain building works and change the use without needing to make any sort of planning applications as well.

It allows you to do quite a few different things which I will expand on later. However, Permitted Development (PD) for me, one of the major bits to really think of when you’re looking at it is that it’s objective.

It outlined what you can do and you know what you can build within the laws, as long as you understand those laws. We’ll go into some of them later.

The key is that permitted development rights are not at the whim of the planners at the council. So when you have to go for planning permission, it can take a long time, and is at the whim of whether the councillors are happy with that within each local authority.

So, the timeframe is one of the biggest factors at play with Permitted Development. Developers incur huge delays sometimes and cost with going into the planning departments.

I’ve heard of some examples where they’ve spent a long time, and this comes down to the knowledge of the developer, and the planning permissions been refused, and then after they’ve read the document, they realised they could do it under Permitted Development Rights.

So, Permitted Development, as long as you’re up to date with all the facts and the current laws, then you can proceed without any sort of delays.

Before we explain the rules, let’s go back in time as they say, and let’s go back to the beginning, right back to 2015, when PD as you know, first came in.

The Town and Country Planning (General Permitted Development) (England) Order 2015 (the “GPDO 2015”) is a statutory instrument, applying in England, that grants planning permission for certain types of development (such development is then referred to as permitted development)

The GPDO 2015 came into force on 15 April 2015. That document is long and it’s been updated every year since. So it’s really good to have a hand on that document and read it through. As I have said previously it’s really good to have that crack team around you.

Even if you do not understand them fully it is vital to find somebody who’s really good at understanding those rules.

There have been amendments and extensions since then every year. So it’s something that could be ending in 2017, and may have been extended on.

Really, Permitted Development is brought out for this one reason, it’s because governments are trying to encourage extensions and new builds.

They’re encouraging either people themselves, for the houses they live in, or for investments, to be able to do this without all the red tape that comes with it. So there have been extensions to prior approvals, and there are some examples of that for the prior approvals, as an example the four-metre rule that you can extend out up to eight metres. Though, there are certain rules when you go out to eight meters in extending the property under Permitted Development, as long as you don’t have complaints from the neighbours. So make sure that you buy them a bottle of something for Christmas and get on with your neighbours, especially if you’re looking to extend that property!

Permitted Developments doesn’t mean that it’s an open book, that you can just change your property into anything. When we’re going back through this timeline, and there are a few tests that need to be done in there, I’ll pick out a few for them.

So you always need to think about flooding, and also, when you’re building or extending or doing something, is there going to be a flooding concern with that? Also, is there going to be a surcharge of sewage on the sewage system itself? Horrible subject, but it needs to be considered.

If you’re converting, say an office block that was worked into, then you’re probably only having a few cups of teas, you’re not living in that block. If you’re turning it into flats, a different sewage system is needed, so considerations for that.

One of the final ones I will give you is around noise. And that doesn’t actually mean the noise from the block that you’ll be developing under Permitted Developments, it’s if you were developing something maybe in the city centre that’s near a nightclub, or maybe a pub for example.

We don’t want to see the pub being in detriment, because then the flats make complaints because they live next to a pub. The pub was there first. So those noise concerns need to be factored in when we’re seeing them.

Let’s fast right forward to last year. I’m sure everyone’s trying to forget 2020 because of the pandemic. However, there were some really good things that happened with Permitted Developments.

One of the major changes that happened was September 1st. And that saw a change of Permitted Developments within this new use class, which is E.

And what these use classes and asset classes highlight is that you really need to know what these are when you’re a developer and you may be changing one property from one class to another.

Class E allowed you to benefit and change what remained in there. So shops, offices, lights, industrial, medical services, etc, and no planning or prior approval was needed. So the benefit of that again, and for developers is that those empty units could be utilised and changed into something.

I’ll go dramatic now and say, you know, there are no ghost towns anymore. They don’t want the ghost towns to bring crime with them, and the ability to utilise empty units helps prevent this.

People may be used to Permitted Developments from back in the past when they were trying to change a property that was residential into an HMO. And in most areas, you were able to change a property from a C3 Class to a C4 Class. That’s the C3 and C4 which is HMO. However, in some areas the councils bit back, and there is an Article 4. We’ll go into Article 4 I’m sure with some questions later.

On 1st of August 2021, as a result of the announcement in March 2021, this increased the evolution of what was there as Class M. Okay, let’s break that down.

There’s a new class, which is MA. Basically, it gives you an opportunity to transform vacant commercial into residential. That’s good enough for me to know to understand myself. So that’s not through C3 and then into HMO’s. So this is actually C3, the residential property that you live in or you would rent, or buy to let. All your regulated residential property.

So class E to residential is where it would be going and that’s what MA is. Some of the things it’s brought about are it allows you to convert maybe that office block, it’s up to now 1500 square metres, that you can change that property and increase. Now that is a massive increase on the previous allowances, a tenfold increase on the personal allowance. That is brought about to probably help the high streets.

We’ve seen through COVID, and we’ll go into this several times I’m sure, but it’s not just COVID that caused the sort of demise of some of the high street and some businesses. The writing was on the wall with some of these businesses with what was happening through the internet. I’m sure lots of people have had an Amazon delivery recently.

One of the facts that you need to know is that you can’t just buy that Debenhams if it just closed down yesterday though, it has to have been vacant for three months. So whoever that commercial entity was that’s in that building, it has to have been vacant for three months. And that’s really important because if you, like me, don’t have patience as one of your strong points. If you want to go forward and say I’ll go when it’s only two months, but I know it would be two months vacant, prior approval will be rejected on those properties.

Some of the commercial failures that have been on the high street are prime sort of pickings for this. And it’s not prime pickings just for the opportunity, it’s prime pickings to help that community in that area and aid any regeneration. Again, we can go into that at a later date.

We’re not able to do all areas. So areas of outstanding natural beauty, there’s no Permitted Developments and the new rules from the 1st of August doesn’t come into that.

But one of the most crucial areas is that you’re able to do this within conservation areas now. Now conservation areas, when I was looking into it in the past, sounds like wooded areas etc. Well, the central of London has massive conservation areas, similar to lots of the cities around the country.

So that is a major area that falls into Permitted Development, and you don’t have to go through that time and exhaustion of planning, if PD can be done for you. So that’s a massive change. There are lots of other areas too.

You’ve sort of touched on it there, in that it sounds like these are big changes that are potentially going to have a big impact on the market. Dangerous making assumptions, but I am going to assume you agree that they’re big changes. Do you view them as positive or negative, and how would you weigh up any positive and negative impacts from these changes that have come into force?

– As a lender, you can lend on these types of refurbishment properties. So here at Glenhawk, I see that as a positive for the developers out there. So I think it’s a massive positive for developers. If you were to ask somebody in some of the local authorities, I think they would see it as a negative because they will have a lack of control over the housing stock and the stock and the commercial stock, and the changing of the high street.

So, I will get off the fence and say that I think it’s a really good change, I think it’s a really good, positive change for developers. I think it’ll have a massive effect on the high street in particular. With the decimation as I said, of some of the biggest brands, it will allow developers to revitalise the high streets. I think there’s actually something else on that.

So we may just be thinking about maybe the Debenhams of this world but what’s actually happened? The government has this 300,000 target each year, which they fail to hit a lot of the time, of new housing stock.

But with the new housing stock, you start building in Greenfield and Brownfield sites and all different areas, and that’s pushing them out of town centres.

The secondary and tertiary sort of locations are the ones that are probably going to be looked after by this rule. I believe it gives a really good opportunity for those areas in the community to expand. I’m not going to be too evangelical on this, but I think COVID has made us realise that we like things local, we like lots of supporting people local as well, I definitely believe in that. So if you can have houses which have been converted out of an old commercial building, but next to a commercial which could be utilised, that’s only got to be good news for both, hasn’t it? It could revitalise town centres themselves.

Good opportunities for developers too as there are no dwelling mix restrictions. One of the negatives for developers even though, is that you can’t add on, there could not be any external alterations. So anything sort of an extension to that building itself as well. So there are different bits that you’ve got to learn, but again, it’s about understanding the rules and reading that GDPO document.

Just on the point of the town centres you’re raising there. The problem for some businesses was the lack of footfall in that area. So when the developments go in, which then bring an influx of people, whether that’s because they’re going there to work or whether that’s because more likely they’re living there, that’s when the local businesses, small businesses, not just the Tesco, go, “ooh woo-hoo”, there’s a load of people there, we can set up a business here.” It’s everyone who then benefits from that. And then like you say, it reinvigorates that area of the high street, because you’ve brought back what it needs, and what it needs is people and footfall.

– Everything needs to diversify. I think pre-COVID, we’ve learned that from online sales.

Developers have had to diversify because of the cost of materials has gone up, so they put that in their schedule of works. People are living differently and I think there is a point in case of this that just because the high streets always looked like that, or just because we’ve always been able to have those commercial properties that have then had to go through planning, why don’t we make it easier? If we need more housing stock, allow developers to put in some really, really good builds that have got some really good architecture and really good plans to them, and allow people to live in different places they may want to do in different types of buildings. We’ve seen it in Liverpool, we see that in Manchester, the revitalization and the regeneration of some of those areas. It’s amazing what can be done by developers.

What are the key exclusions, limitations, the key headlines on the Permitted Development Rights?

-So it’s a great question. The building must have been vacant for a continuous period of three months immediately prior to the date of the prior approval application.

The use of the building must fall within one of the following classes, the E Class that was in there. And one of the things that it can’t be as well, is that it had to have been within that class for the last two years when I’m mentioning that.

So for example, it can’t have been changed into say Class E, or changed within Class E in Permitted Developments within the last two years, and then change into a residential property. I think that’s fair.

Then we mentioned the floor space is 1500 square metres as well – maximum. But again, I see that as a positive, not really a limitation because of the tenfold increase it’s been before. So there’s a few other things that we need to think of regarding conservation areas that you can allow, but not national parks, not the areas of outstanding beauty that we mentioned before.

Maybe safety hazard areas, why would you want to live there anyway? Plus military explosive areas and storage areas is one as well. Agricultural tenancy is something to have a look at as well. But again, come back to me because my knowledge on that area as well, is not as strong as some of the things I’ve already mentioned.

When you were touching on the cumulative floor space how many situations do you see where people are actually doing over 1500 cumulative floor space? Do you think that is going to in any way, shape or form put people off or have any impact?

– No, it will not put people off at all. So let’s break this down. It doesn’t mean that 1500 square feet is the only size property that now can be developed. I’ve been writing at Glenhawk, lots of refurbishment deals that have got planning permission to change the commercial units of 3000 or more, as an example for illustrative purposes, and that for 3000 square metres into something else, it just has to come with planning.

So that just comes with a bit more time and a bit more planning, sorry for the pun, that the landlord would need to do and the developer would need to do on it. So Glenhawk can assist in both ways for that. All this does, the 1500 square metres, is allow you the opportunity to do that in a time-efficient way.

Two questions, you mentioned Article 4. So for those that would want to know, what is Article 4, and also, how do these changes impact do you think, on Article 4, directions moving forward?

-It’s a good question. So Article 4, the first time I heard about it was 2015 and I thought there was a new boy band on the market or something, but however, it wasn’t, it was something to do with planning authorities, and I had to read that paper again!

Article 4 gives planning authorities and the local areas, the power to remove specified development rights locally.

So let’s go back to that example again, where I have the one where I said, “The residential property that you want to convert into an HMO.” Remember, House in Multiple Occupancy, eight bedrooms or more. Then what that allows you to do, C4, which is HMOs, can allow you to go up to six bedrooms.

Now, with most local authorities, you’re able to convert that under permitted developments.

However, Article 4 stops you, allowing you to automatically go from C3 to a C4. So you have to go for planning permission. Now there’s 20% of the local authorities out there that have an Article 4 in there. Well-known ones are Southampton, Birmingham coming in, Salford have got them as well. But London, if you’re reading this from London or looking to buy in London, it’s got 22 boroughs that have got Article 4 there as well.

So the new legislation on 1^st August 2021 doesn’t undo these Article 4s. What it’ll actually allow, if there’s still an Article 4 area, it still will be for this commercial to residential refurbishments and conversions, that will still exist until the 31st of July 2022.

However, the local authorities really need to get a step on if they want to extend that Article 4. Powers in a sense for the planning there, because the new legislation to get Article 4 is not so easy. This is the government, again, wanting houses to be developed, built, and more housing stock on the market, and the high street being changed.

So on that point, the opportunity in a way on the high street is to convert at least parts of it, hypothetically into residential stock. Whether that be flats, whether that be whatever you want to do with it. And I guess some developers may well take the view, “Well, actually I’ll refurb the whole lot.” So I’ve got an amazing flat say, above the shop in a typical high street, and then maybe the office space beneath it becomes more attractive. Maybe even looking at that as a wider project in a way for that area I presume? Is that fair?

– That’s fair. Each deal that I have across my desk is slightly different from what someone wants to do with it. Whether that be mixed-commercial, commercial, and it’s just understanding because these PD changes are not supposed to be seen in my mind, even though we’re talking about them, something that’s separate and new.

PDs existed, planning changes, it’s just an opening up. That just opens up the scope that you can do in bridging. It still comes down to the point that, you’d still need to know about what you’re doing through a schedule of works, showing us what you want to do with that property, understanding what you’re purchasing it for, understanding what the costs are going to be for doing that and understanding what the gross development value will be. We can lend up to, with one of our products, 75% of that LTGDV, Loan to Gross Development Value and that’s how we can help you at Glenhawk. It’s nothing to be concerned about. Whatever mix of property that you want to do with that commercial, we can assist you with.

And how does a commercial deal with Glenhawk work in terms of funding that refurbishment for something like that, what’s the journey like?

– Well, the journey’s really good and a really good service. What we would value that as which some other lenders won’t do, is that we’ll do that on a vacant possession, GDV value. If it’s one of these deals that we’re talking about specifically, you want it to be vacant possession because it need to be tenants out of there for three months anyway.

So it would ultimately just be about understanding the experience of the customers, understanding exactly what their A & L position is, what their cash position is. Understanding about the security itself and knowing what the plans would be at that property. Then we would be able to get you terms on that and then out into underwriting. The underwriting process as well as the legals can run side-by-side at the same time, to minimise the time that you’ve got there.

Then we can loan that to 100% of the works on them. We can loan up to 75% of the GDV of that property as well, so we can give you all of those costs in arrears. Then if/when it completes, you can have up to a 12 or 18-month term on that, and you can have the amount of draws that you need to do, drawdowns, during the term of the loan, and pay interest on them when you draw them down as well.

So a very slick operation that we’ve got here that can help you out with these refurbishment deals.

How big a pull is the 100% work? Is that just like an element? How big a pull is that out of interest, for people?

– It’s a big draw for developers because again, as long as they’ve done their calculations with it, why would they want to put their liquidity in it when they could be lending off the GDV?

So by lending off what the value of the property is going to be uplifted to, then that’s a massive draw for them to keep that liquid position. And there are lots of other areas that then we can help you out with later on. Developers always want to be in a liquid position. When they finish that build, they may come back for another bridge to do a market & exit loan on a completed bridge as well, to go onto that next commercial development. So you’ll find a lot of repeat customers using us for that.

And who do you think will benefit most from the reforms and changes to Permitted Development Rights in the coming years?

– This is something more for society, if you will, rather than either the big players or the small players in the market. I did a case the other day, and if it was a commercial property for the terms that came in under this new scheme.

This ex-commercial property, offices that they want to turn into 36 flats. Now, this wasn’t a big conglomerate doing this, this was a developer, but the developer did have experience of doing that deal.

So I’d go in with your eyes wide open and not think this is my first deal. Lots of people build up experience the buy-to-lets, do a bit of work on it and flip it. Then they’ll get more comfortable with their crack team around them of who they can use to do that.

So this is for the benefit of the developers, of course, it is. Is it of benefit to the market itself?

Yes, because if they are not done up to spec and not done right, then the tenants won’t go and live in them, assuming it is tenants. So it’s a benefit to the tenants having really good stock that they can go and live in closer to work, closer to their family, wherever it may be, closer to the shops in the city centre. So I think it benefits society as a whole.