Is it the end of the line for office-to-resi conversions?

Is it the end of the line for office-to-resi permitted development rights?

Developers should be aware that the writing appears to be on the wall for office-to-resi permitted development (PD) rights. They should be careful when committing to new projects, especially those with a time lag. By the time they come to convert a newly-acquired office building, office-to-resi PD rights may have been curtailed or removed altogether.

In 2013, the government amended the General Permitted Development Order (GPDO) to allow developers to convert office space into new dwellings without the new to apply for full planning permission. Although an application for prior approval needed to be submitted, this could be assessed on three grounds only – parking, flooding and contamination (a fourth ground – noise from nearby commercial uses  – was added in 2017).

The idea was that redundant office space could find a new lease of life as residential accommodation, bringing old buildings back into use and boosting housing supply.

However, the measures circumvented the normal planning approval process, raising questions about the government’s commitment to using planning to ensure that new development met minimum standards.

When the amendments were first introduced, it took developers some time to realise that they could use the new permitted development rights to build flats considerably smaller than the national minimum sizes. There were also no other requirements – no need, even, for the new units to have windows.

In a properly functioning housing market, it wouldn’t matter. No sane developer would build tiny flats without windows, because it would not be possible to sell or rent them. In England’s dysfunctional market, however, substandard units command a high rent (though would still be difficult to sell, in most cases).

As years have passed, developers have mastered the new prior approval process and have squeezed down the sizes of flats and the quality of accommodation they provided. Canny investors now buy office buildings with prior approval for, say, 30 one-bedroom flats, and reapply for permission for, say, 50 studios, thereby adding value.

These permitted development rights have always been controversial, but the government was determined to deliver new homes. In recent weeks and months, the mood music has changed.

In April 2019, Labour committed to scrap the permitted development rights, arguing that they facilitated the creation of slum housing (https://www.bbc.com/news/business-48031661).

In June 2019, (soon to be ex-)prime minister Theresa May made a speech on housing in which she called for new regulations to ensure high-quality homes as part of an “ongoing housing revolution”.

The Times published an investigation into the permitted development rights just this month (July 2019) (https://www.thetimes.co.uk/article/landlords-make-millions-from-flats-the-size-of-a-parking-space-nm5tw72ss), noting that some of the new flats were “barely bigger than the size of a typical parking space”.

The Daily Mail leapt on the story (https://mol.im/a/7242903) and several other publications shared their outrage.

Matters appear to have come to a head in the last week or so. On 5 July 2019, the planning inspectorate granted prior approval at appeal for the conversion of an industrial building in Watford into flats under industrial-to-resi permitted development rights (which operate on the same principle as office-to-resi rights). The application was for 15 studios, of which 7 would not have any windows. The average size of the studios was half the usual national minimum of 37sqm. The appeal decision is available here.

The appeal inspector was right to allow the appeal – the permitted development regulations do not control the size of the units created nor the quality of accommodation – but the decision has nevertheless provoked howls of protest.

On 18 July 2019, the elected mayor of Watford, Peter Taylor, wrote to the government to ask for the permitted development rights to be overhauled. RIBA president Ben Derbyshire has called for a Parliamentary debate on permitted development rules. Victoria Hills, the RTPI chief executive, commented: “Not only do permitted development rights risk poorly designed and inappropriately located housing, but they also challenge local planning authorities’ ability to deliver mixed and efficient land use and make it more difficult for communities to engage in development.”

Protests appear to have gathered enough momentum that change seems inevitable. Although the government could scrap the PD rights altogether, the most likely outcome is that the General Permitted Development Order (GPDO), the legislation that sets out permitted development rights, will be altered to introduce minimum sizes for new flats and to require that they have adequate, light outlook and ventilation.

Changes to permitted development rights typically happen every April, though there is nothing to stop the government tabling legislation before then, especially if opposition to them gains momentum.

With a change in prime minister and ongoing Brexit chaos, they may not be a priority, but it is also suggested that Boris Johnson will seek to hit the ground running as PM by introducing a raft of new measures to create headlines and keep civil servants busy – a change to PD rights would show a commitment to improving people’s lives without any immediate cost to the treasury.

Developers considering office-to-resi (or shop-to-resi, industrial-to-resi etc) projects should start work as soon as possible – any change to the GPDO would not normally affect projects that have already commenced. However, a change to the legislation could invalid existing prior approvals because these are not the same as full planning permissions – they are vulnerable to changes in the legislation under which they were granted.

Developers buying office buildings with the hope of converting them in the next 6 months to a year should think twice – or at least ensure that they have a fallback plan if permitted development rights for this form of development are altered or removed.

A final note – Just Planning acts for developers in applications and appeals – we leave the politics to politicians. However, it is clearly wrong to create flats the size of parking spaces without reasonable light and outlook. As usual, it is the few bad eggs in the business that ruin it for the rest.

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