The Pros and Cons of Permitted Development Rights
“A building is not something you finish. A building is something you start.” – Stewart Brand
The impact of Covid-19 on commercial premises
The pandemic lockdown measures made it mandatory for people to work from home. Now that lockdown is over, return to the office ‘en masse’ has not materialised and people have come to prefer hybrid working which requires differently designed and configured office spaces.
As a result, the demand for office space has decreased and changed from large buildings to smaller spaces featuring a higher quality standard of design and functionality. This trend will see an increasing number of tenants migrating to better buildings, leaving often substantial spaces and office blocks empty and unused. This in turn presents incredible redevelopment potential.
Introducing Permitted Development Rights
On 1st August 20211 the Permitted Development Rights (PDR) scheme was introduced, opening up a world of opportunity for buy-to-let investors. The PDR scheme allows for the easier redevelopment of commercial premises into residential homes and bypasses the usual standard planning permission and regulations. Made into permanent legislation in 2015 2 it means permission for redevelopments is granted by Parliament rather than the Local Planning Authority (LPA). The scheme was then extended in response to Covid-19 to include the following commercial premises:
This widened the scope for investors to take advantage of vacant spaces that were being sold at rock-bottom prices, taking the concept of the ‘do-er up-er’ to a whole new level.
(It’s worth noting that the PDR scheme excludes national parks and areas of outstanding natural beauty, and the latest PDR regulations mean development in conservation areas may be restricted. Redevelopment in these areas is also subject to challenges and blocks from local authorities).
There are certain criteria for Permitted Development Rights, but they are a far cry from the stringent regulations often required planning permissions. PDR regulations include the following requirements:
- A commercial property must have been vacant for a minimum of three months.3
- The property must have been in Class E (a class that governs a wide range of types of commercial business) for at least 2 years.4
- Safety measures such as flood risk, contamination risks, local disruption and impact on amenities must be considered.
- The cumulative floor space of the unit must be no larger than 1,500 square metres.5
- Any land subject to an agricultural tenancy requires consent from the tenant and landlord before conversions can occur.
Opportunities for investors
Developers can convert commercial properties to residential property and enjoy the benefits of high value rental income after suffering from lost income from the impact of Covid-19 on work locations.
Unoccupied offices will now be open to conversion into residential flats, apartments and even houses. Low cost, long term lets in renovated buildings will result in areas which once played host to office buildings now providing much needed accommodation for families, students and creatives previously pushed out by the glossy gentrification and corporate culture of towns and cities. Boutique businesses and shops will reopen again as landlords may be forced to drop their rents. The sociological landscape of cities and large towns will change. There will be a shift from corporate to community.
The government has highlighted 72,980 6 new dwellings were created between 2015 and 2020. Of these, 64,798 (89%) 7 were offices converted to residential spaces. In London, where the streets are paved with gold, or at least construction materials, the City of London - responsible for the Square Mile - has plans for at least 1,500 8 new homes converted from vacant offices and other buildings by 2030 9. This is a marked increase from just seven 10 new homes built in the Square Mile between April 2017 and March 2018.11
Article 4 of the PDR scheme gave local planning authorities the power to remove permitted development rights in their geographical areas particularly in World Heritage sites, conservation areas and National Parks.
But Article 4 relevant to residential conversions, will only stay in place until 31st July 202212. For better or for worse this means that the power local authorities had to block developments will diminish. Great news for investors – but not so good for local communities which are affected by redevelopment.
However, many believe the drop of Article 4 from PDR this might provide a solution to the current housing crisis. Yet concerns remain that the voice of local communities regarding the location and effect of redevelopments won’t be heard. One way around this issue is the creation of ‘mixed-use’ property areas where conversions from commercial premises (particularly high street retail spaces) will include amenities and facilities which take care of community needs as well as residential living spaces.
The Local Government Association (LGA) is concerned that redevelopment of abandoned and unused office buildings could give unscrupulous developers ‘carte blanche’ to take advantage of the Permitted Development loophole that allows building to take place without planning permission. Legislation that required a certain amount of affordable housing to be built in developed areas could be bypassed because of the Permitted Development Rights’ relaxed regulations. The LGA reported that in the past five years over 16,000 13 affordable homes could have been lost in the U.K. as a result of PDR not requiring affordable homes.
A second negative factor was that many of the conversions were of substandard quality with inadequate lighting and fell short of the minimum space requirements. In other words, the cowboys moved in – more cons than pros. In response to this, in 2020 and 202114 the government introduced rules which set certain standards around natural light levels and living space - which had to be no smaller than 37 square metres.15
Ensuring you have the right insurance
If you are a redeveloper or a landlord you will need the right insurance cover whilst building is taking place and once it’s completed. Every redevelopment will be different depending on the location and the type of conversion.
At Stride we offer expert advice on how to make sure your policy covers all eventualities. Whether this is a first-time project or an addition to your property portfolio, we can provide tailored insurance made for complicated situations and individual requirements because every client has their needs and goals.
Our landlord policies feature a great range of benefits as standard, such as building and contents insurance, property owners liability cover, and protection against loss of rent following damage to your property.
Our experienced professional advisers are on-hand to guide you through the process of finding the right insurance for you.
If you have any questions or would like further information about your property insurance, contact us online here.
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