Commercial to Residential conversions

Commercial to Residential Conversions

Historically there were quite significant hurdles to overcome for a residential developer to convert commercial premises. That however changed in 2015 and since that time the planning system has continued to evolve such that the conversion of commercial premises to provide residential accommodation is arguably easier, so far as the planning requirements are concerned, than ever before.

The 2015 changes to the General Permitted Development Order signaled the start of a growing trend for investors to target commercial premises.

The most recent changes, which were brought in on 1 August 2021, allow buildings under the new Use Class MA (which includes commercial, business and service premises) to be converted to dwellings subject only to compliance with the Prior Approval process.

As with all property strategies, you should undertake some through due diligence before committing your hard earned funds. The first thing to understand is whether the new regulations apply to the building you are considering. Bear in mind that Listed Buildings will still require the formal planning process and this is also true for those buildings in areas of outstanding natural beauty, the Norfolk Broads and those within safety hazard areas such as military zones. Note that these new planning regulations can be used in Conservation Areas however additional impact assessments will likely be required by your local Council.

The size of the proposed premises will also impact whether the full planning process is required. The permitted development right does not apply if more than 1500 square metres of floorspace is to be converted.

The advantages are likely to be significant. Commercial premises are generally in central locations and therefore often provide a perfect location for a rental or resale development. Conversion costs are generally less than the cost of a new build and you may find that with commercial premises you are battling with fewer prospective purchasers than is the case with residential property.

If you can find suitable premises you will likely have the opportunity to create some interesting and rather unique dwellings, which may be more attractive to buyers and renters than comparable new build housing.

To comply with the prior approval requirements, the property must have been vacant for a minimum of three months prior to the submitting of your application to the Local Authority. Further, it must have been operating in its commercial use within the last two years.

The aim of these new regulations is clearly to try and streamline an overwhelmed planning system, increase the delivery speed of new housing and to provide a positive injection into the economy.

Some consideration has been given to balance speed with quality and now any residential conversion must comply with the national minimum space standards to ensure not only sensible sized dwellings but also the provision of natural light to all habitable rooms.

The prior approval system requires only the consideration of  1) transport impact of the scheme, 2) environmental contamination 3) flood risk 4) noise impact from neighbouring commercial uses and 5) the issue of residential amenity in commercial and industrial areas.

Encouragingly, whilst section 106 payments can still be levied by the Local Authority as part of the permission process, they can only be levied in respect of the five items above which are subject to prior approval. Indeed whilst Community Infrastructure Levy payments are technically still applicable, most developments will gain from the “in use” exemption in that their commercial premises will have been used as such for a period of 6 months in the preceding 3 years prior to consent being given.

A further advantage is that the fee is lower at £100 per dwelling and the prior approval should take 56 days rather than the more protracted timescales of a full planning application.

Whilst a full conversion is unlikely to be suited to those new to property, it may be a more attractive opportunity than a full new build as arguably the planning risk is lower and funding may be easier given that there are existing buildings upon which to provide some lending security.

If you are new to commercial conversions I would urge you take some professional advice. The potential costs associated with contaminated land, hazardous materials such as asbestos, site clearance and services could make for an unwelcome surprise for the unwary. You should also speak to your Accountant and understand any tax implications not least as different rules apply in respect of VAT when dealing with commercial property. Get it right and a commercial conversion can provide very unique units for the sales market or a robust rental yield in the event that you retain what you have built.