On 21st April 2021 a new Permitted Development (PD) right came into force allowing owners to change properties in Use Class E (commercial and service use) to Use Class C3 (residential use). The new PD right, Class MA, will be exercisable from 1st August 2021 and is subject to approval from the local planning authority. This change forms part of the government's strategy to remove complexity from the planning system and create greater certainty for developers in order to address the challenges faced on the high street and the ongoing housing shortage. The government have already demonstrated its belief in the expansion of PD rights as a means to incentivising development activity with a series of new introductions last year, and this latest PD right further exemplifies the governments chosen course. But what does this PD right mean for developers and landowners and how likely is it going to deliver on the government's ambitions?
What do the changes mean for landowners and developers?
In order to be eligible, properties are required to have been in Class E use for 2 years (including under former uses ie A1, A2, A3, B1, D1 or D2) and been vacant for at least 3 consecutive months. A 'light-touch' prior approval process requires an application to be submitted to the local planning authority (LPA) who will consider the impacts relating to flooding, fire safety, noise amenity, transport, contamination and natural light. Converted properties will not be required to have an affordable housing element; a potentially favourable consideration compared to that of new build properties that could be subject to such requirement as part of a planning application.
The area that can be converted will be restricted to a maximum size of 1,500 square metres. Interestingly this actually provides a new restriction on existing PD rights to those that wish to change office space to residential use. Since 2013, PD rights have allowed the conversion of offices to residential use under Class O. With Class O now being replaced by Class MA, developers wishing to convert office to residential use over 1,500 square metres will now have to submit prior approval applications before the 31st July 2021. The conversion will then need to be delivered within 3 years or the PD right is lost.
One further potential drawback for developers and landowners is that under the PD right no alterations can be made to the exterior of properties as this would trigger the need for planning permission. Developers could therefore be faced with trying to fit a 'square peg in a round hole' hindering the viability of redevelopments.
Despite the aforementioned potential drawbacks, in the main the changes provide developers and owners with fewer restrictions to switch the use of assets and with greater certainty of achieving approval. For developers and landowners this should be welcome news, with the opportunity for targeted regeneration in areas where commercial units lie vacant.
Will the new PD right deliver on the governments ambitions?
Few would argue that there is a need for change. The governments own targets for new homes continues to fall short and the challenges of an already much maligned high street have been further exacerbated by COVID-19. As we start to emerge from over a year of lockdowns we bring with us an increased acceptance of online shopping that is unlikely to completely revert back to pre-pandemic levels and a revised work set up that requires less time in the office. The new PD right is of course part of an overall strategy to overhaul the planning system, rather than the only intervention by the government, but I believe that it is significant and there could be a high uptake from developers and landowners.
But will this be a good thing? There are some that are wary of reducing the powers of LPA's and effectively handing control to developers and landowners to make decisions in the best interests of the towns and cities. Will converting tired retail and office buildings into residential dwellings without being able to change the exterior to the buildings provide the standard of housing that is required? Will the heart and soul of town centres be replaced by a mish-mash of ill thought out residential developments? And is this coming all too soon given that retail and hospitality particularly, have not yet been given the chance to recover from the pandemic before developers steam in with designs of converting sites into residential dwellings?
My view is that the concerns listed above paint a very sceptical view of how this PD right could be adopted. I am frequently amazed and impressed by the creativity of design teams and developers in their plans for regeneration. Those that take a wider interest in the needs and strategy of the locality stand to benefit most in protecting and growing the value of their properties. In not adopting this approach, developers and landowners could risk reducing footfall and demand in the locality with an obvious impact on demand and property values. There will of course be the full spectrum of schemes in terms of quality and no doubt the worst ones will be heavily publicised, but it is my experience that developers in the main carry out detailed scrutiny in order understand the viability of their project and ultimately the certainty of returns on their investments. It is therefore my belief that this new PD right could turn out to be a positive intervention by the government.
How can MontpelierPF help?
MontpelierPF offers impartial specialist funding solutions across the full spectrum of commercial and residential investment property transactions including development finance, bridging loans, and investment mortgages. Funding is sourced from, but not limited to, high street banks, challenger banks, funds, family wealth offices, pension funds and offshore institutions. If you have a scheme that you wish to discuss please contact us here.
Comments