Seddons GSC is a full-service law firm providing comprehensive legal advice to both businesses and individuals across commercial real estate, corporate law, dispute resolution, employment, family law, estate planning and related areas.
- Philip is Consultant Solicitor and Head of Planning with Seddons GSC, being a specialist planning lawyer who is a former local government chief officer and legal associate member of the Royal Town Planning Institute; he is the Chair of the Law Society’s Planning and Environmental Law Committee.
- Negina is a Solicitor in the Construction Department of Seddons GSC.
My office might be a liability not an asset – what can I do?
The Covid-19 pandemic and resultant changes to working practices was a timely reminder to owners of offices that their portfolio might not be the valued asset they hoped it would always be.
In that general context, reminders keep on coming; for example, under the UK Minimum Energy Efficiency Standards (‘MEES’), all non-domestic rented premises will need to have a minimum EPC rating of ‘B’ by 2030 if they are to continue to be lettable, a significant increase from the existing ‘E’ level (introduced in April 2023). The corollary is that energy-inefficient buildings with older heating systems and poor insulation are at risk of needing considerable investment or no longer meeting mandatory standards or providing accommodation that the market expects. To make matters worse, such buildings might anyway be of a general design that does not meet current market expectations, or they might be in out-of-fashion locations which are already struggling in the current economic climate.
Landlords of multi-let commercial buildings or large portfolios of offices are particularly at risk. Some premises might have been marginally compliant under the old standards but would now need substantial investment to upgrade to meet the new requirements or the expectations of occupiers, and they might then still prove to be hard-to-let because of location or other factors even after significant investment.
A review of portfolios is therefore sensible, considering other options which might be open to the owners of such offices.
Some office-to-residential conversions in England (but not Scotland or Wales) can be done under “permitted development rights” pursuant to Class MA of the Town and Country Planning (General Permitted Development) (England) Order 2015 (“GPDO”) as extended in March 2024, meaning there is no need for a full planning application.
It is however still necessary to follow a “prior approval” process with the local planning authority (which is in many ways a form of “planning-application-lite”). This involves:
- An application: There is a need for “prior approval” from the local planning authority, with a formal application (and fee) and providing sufficient details to allow the authority to make a decision. The authority can only consider a limited set of criteria including transport and highway impacts, noise impacts, flood risk, and contamination.
- Design standards: The conversion must meet certain standards for new homes, including minimum floor space for each bedroom under the Nationally Proscribed Space Standards and the requirement for natural light in habitable rooms.
- Previous use and vacancy: When introduced there was a requirement that the building must have been an office (or another Use Class E use) for at least two continuous years before the prior approval application and must have been vacant for at least three months before the application date, but both of these requirements were dropped in the 2024 update.
- Size limit: Likewise, when introduced the total floorspace of the building could not exceed 1,500m², but this requirement was also dropped in the 2024 update.
- External changes: There are limitations on external alterations; for example, you cannot build outwards or upwards, and there may also need full planning permission if there is a need to create new windows.
- Location restrictions: Conversions may be prohibited in certain areas, such as national parks, areas of outstanding natural beauty, and some conservation areas or listed buildings.
- Article 4 Directions: It is possible that the local planning authority might have implemented an “Article 4 Direction,” removing permitted development rights in specific areas so that a full planning application would be necessary.
Despite the fact that “permitted development” might be something of a misnomer given the restrictions in the GPDO and the need for prior approval, the exercise of these rights has continued to be popular, with government statistics showing that nearly 500 applications were submitted towards the end of 2024. However, unless the owner is going to sell the undeveloped “project” that is not the end of the issues that need to be considered.
Although office-to-residential conversions are now more common, the construction legal landscape remains complex. The Building Safety Act 2022, brought in following the tragic events of the Grenfell Tower fire, tightens regulation of higher-risk buildings (“HRB”, being over 18 metres tall or with seven or more storeys, relatively common with office buildings, and containing at least two residential units). It imposes stricter duties on clients, designers, and contractors, and introduces Building Liability Orders, extending liability for safety defects to related companies who share the same director(s) as the company being claimed against. The Act also extends the limitation period for claims under the Defective Premises Act from six to fifteen years, increasing developers’ potential exposure. Developers must comply with the three gateways at planning, pre-construction, and pre-occupation stages. The Act also creates new roles, including the Accountable Person, Principal Accountable Person (during the occupation phase) and Principal Designer, Principal Contractor and Client (during the construction phase). Construction works in HRB are supervised by the newly created Building Safety Regulator, increasing compliance complexity.
Therefore, a review of an office-based portfolio might not reveal straightforward answers, and refinancing might be sensible while decisions are being made; however, a fundamental change to the received wisdom of the last half-century is clearly necessary if commercial property is to remain an attractive investment choice in the twenty-first century.
To read the article on Estates Gazette please click HERE.