Planning rules are to be amended to make it easier for offices to be changed to residential accommodation. Proposals prepared by government almost two years ago – and shelved last summer – have been dusted off and fine-tuned for implementation. The revised legislation regarding ‘permitted development rights’ is intended to operate and highlight potential legal implications for the real estate sector.
First, it is worth looking at how we got to where we are now.
Planning for growth
As with many recent planning reforms, the key driver for the proposed liberalisation of legal restrictions on changes of use of property was the government’s commitment to stimulate economic growth. It was announced in the 2011 budget that the government intended to put this on the legislative agenda. A consultation about the relaxation of planning rules for change of use from commercial to residential followed shortly in April 2011. At that stage, the proposal was for all commercial uses, including offices (B1), general industrial (B2), and storage and distribution (B8), to benefit from permitted development rights when changing to residential (C3). Such rights allow the use of a property to be changed without needing to apply for planning permission. The consultation cited the urgent need to increase housing supply at the national level as the principal and compelling justification for making the legal changes.
By summer 2012, and with only one-third of respondents to the consultation clearly supporting the changes, the government chose not to proceed with legislative changes and left permitted development rights as they were. Instead, a specific policy was included in the National Planning Policy Framework – a codification of previous planning policies which all local planning authorities must now take into account when determining planning applications – to encourage authorities to deal positively with applications for change of use from commercial to residential. Paragraph 51 states that ‘they [local planning authorities] should normally approve planning applications for change to residential use and any associated development from commercial buildings (currently in the B use class) where there is an identified need for additional housing in that area, provided that there are not strong economic reasons why such development would be inappropriate’.
In September, however, with housing and infrastructure firmly at the top of the growth agenda and policy intervention seemingly insufficient, Eric Pickles, secretary of state for communities and local government, issued a written ministerial statement confirming that the government (again) intended to introduce the permitted development rights to enable change of use from commercial to residential.
New rules for changes of use
The legal effect of the new rules is simple but significant. Where the rules apply, landowners and developers will not need to apply for planning permission to change the use of a property from office (B1(a)) to residential (C3). Note that other commercial uses – research and development (B1(b)), light industrial (B1(c)), general industrial (B2), and storage or distribution (B8) – will not benefit. As such, the rules have been drawn more narrowly than when proposed the first time around. Importantly, planning permission will still be required for any physical works required to the exterior of a property to make it suitable for residential use.
The rules come into force, according to government, on 30 May 2013, and are initially limited to a three-year period (until 2016). However, there will be a review before the end of that period, which may lead to a further extension. ‘Prior approval’ will need to be applied for and secured from the local planning authority where the proposed change of use is likely to have a significant impact on transport and highways, and/or where the development is located in a safety hazard zone, area of high flood risk or area of land contamination.
Crucially, the new rules (which are limited to England) will not apply in ‘exempt areas’. These areas will be specified on the face of the amendment order. The government has made it clear that the list of exempt areas is unlikely to change during the initial three-year life of the new rules. Local authorities must apply to government to be considered for a partial or complete exemption. While initial announcements made it clear that applications would only be accepted in exceptional circumstances and that the threshold had been set high, more recently planning minister Nick Boles indicated that the government was ‘open to good arguments’.
To qualify for the exemption, the local authority must demonstrate clearly that the introduction of these new permitted development rights will lead to the loss of a nationally significant area of economic activity or substantial adverse economic consequences at the local authority level which are not offset by the positive benefits the new rights would bring. The government has specifically required local authorities to justify that the proposed area of exemption is the smallest area necessary.
Critics of these planning reforms have some easy targets. It is almost inevitable that some landlords will see this as an opportunity to cash in on the higher land values generally achievable for residential property. Valuable employment land may be lost in the process, making it particularly difficult and expensive (given rising rents) for small and medium-sized enterprises to flourish. Residential development may come forward in inappropriate and unsustainable locations, with standards and design lagging behind that ordinarily required and regulated through the planning process. Protecting economic hubs and activity zones may become increasingly difficult for local authorities.
One can also observe potential adverse legal implications. Removing the need for planning applications deprives local authorities of the ability to negotiate, and secure valuable benefits and mitigation from developments, such as affordable housing and local infrastructure improvements. Loopholes are available in planning legislation to allow for sequential changes of use in combination, enabling certain land uses to change first to offices and then to residential, in both cases without a planning application. Given the limited three-year period for the change of use rules, landlords of larger multi-let properties, where substantial conversion works will be required, may find that there is too little time to terminate leases, apply for and secure planning permission for the works and initiate the change of use.
The government hopes that these planning reforms will be a positive game-changer, leading to a step-change in housing supply. This is laudable, and one can anticipate benefits in terms of reduced vacancies and increased use of brownfield land for development. However, there are good legal reasons for doubting that the effects will be anywhere near as wide-ranging.
The list of local authorities applying for exemptions from the rules is already lengthy, and growing each day, with notable candidates including many high-profile London borough councils. And those who fail to secure the exemption will still be able to make use of other available legal powers to limit or prevent changes of use, by making article 4 directions to disapply permitted development rights locally and by imposing restrictive conditions on planning permissions to prevent unapproved changes of use.
Suzanne Gill is a partner specialising in property law, and Marcus Bate is an associate specialising in planning law, at Pinsent Masons