Continued opportunities with changing permitted development rights

Permitted development has proven to be a rich vein of opportunity for investors in recent years, as the government’s appetite to increase housebuilding has driven changes that make it easier for developers to convert property from commercial to residential use.

Until recently, this opportunity has most widely been used to change office blocks into large residential blocks, but this trend for permitted development looks set to change following new legislation this year.

From 1 August, the amount of floorspace which can change use under permitted development will be limited to 1,500 square metres and this effectively means the era of easily converting large office buildings is coming to an end. There will, of course, continue to be opportunities where planning permission is granted, but the rate of large office to residential conversion will undoubtedly slow.

One of the reasons for this change is that the government wants to focus more investment on revitalising England’s beleaguered high streets, and earlier this year, the government announced its plans to streamline the planning system to make it easier for buildings to convert between commercial, business and service uses, such as shops, restaurants, banks, gyms and offices, without the need for planning permission. As part of this, it will also enable more commercial, business and service premises on high streets to be converted into residential without planning permission. In order to qualify, the commercial premises must have been in a commercial business and service use for two years and vacant for three months before any conversion can be considered.

The idea is that, by making it easier to convert smaller disused properties, the government can help to stimulate investment back into high streets, creating mixed-use areas and attracting new businesses. The relaxation of development rules is part of a package of measures designed to revitalise high streets and other measures include a new fast track for extending public service buildings including schools, colleges, universities and hospitals; relaxation of planning rules to allow pubs and restaurants to operate as takeaways; longer opening hours for retail to provide flexibility and reduce pressures on transport; and extending the provisions for temporary pavement licences.

The concept of regenerating high streets by encouraging residential development alongside commercial businesses is one that makes a lot of sense. The reality, however, as always will hang on the detail. The right mix of commercial and residential is essential to create an area in which people actually want to live, and lenders are likely to want to know the detail of the commercial outlets that neighbour potential developments. A high-end townhouse may have limited appeal if it is next to a kebab shop.

The key for developers is always proper planning – even if planning permission is not required – and an attention to detail that creates the right environment for success. For brokers, it’s important to start working with your clients at an early stage of their scheme, to understand their plans and requirements, so that you can then engage a lender early-on to help ensure the project is on the front foot right from the start. Depending on the nature of the project, your clients may require development finance or they could be able to complete the conversion with a bridging loan that enables refurbishment. A lender, like Castle Trust Bank, that offers a full range of loans for property investment, will be able to talk through what type of funding arrangement is required. It could also provide you with longer term options in the form of Bridge to Let should your client want to hold onto some or all of the completed properties for rental income.