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Business to residential property debate heats up

Published on Thursday, 13 August 2015
With the window of opportunity to transform business property into residential homes supposedly coming to a close, the situation continues to heat up, particularly in the capital where huge potential gains in the private market grapple with the demands of SMEs struggling to find affordable commercial units.

Here at Bonsors, we’ve been watching the business-to-residential market, particularly in London and its boroughs, with interest.

The commercial sector has been suffering from a lack of available commercial property largely fuelled by the change in the law which has allowed office space to be converted to residential dwellings without planning permission, known as permitted development rights or PDR.

Many councils have highlighted the loss of businesses and therefore jobs as a result of PDR which has allowed mostly office space to be turned into residential dwellings at an exceptionally fast rate.

A recent report in Property Week highlighted figures from Camden’s Association of Town Centre Management which blames the policy for the loss of 2,500 jobs in the borough.

PDR, which was introduced in May 2013 and was supposed to end in 2016, but in its pre-election promise the Conservatives said the policy would be further extended and even made permanent. Now the government looks like it is about to make good on its pledge with what is called a ‘statutory instrument’ or SI, which was to go before parliament and is used for rule changes when it is considered unnecessary to go through the rigmarole of the usual legislative procedure. However, opposition from councils and even the Mayor of London Boris Johnson has seen it delayed.

Previously, there were exemptions in certain areas of London to safeguard some business areas but under the proposed regulation change these would no longer be applied and instead councils would have to make use of what is known as an Article 4 Direction in order to raise the case for an exemption. Councils as well as other lobby groups, according to Property Week, have requested more time to put together Article 4 Directions. This was duly granted but the publication reported it expected that exemption requests would have to be made by the time the government returns from its summer recess and they can still be overturned by the Secretary of State.

The Royal Borough of Kingston had already highlighted its use of an Article 4 Direction http://www.kingston.gov.uk/info/200157/planning_strategies_and_policies/1064/article_4_direction_-_converting_offices_to_residential_use/2
There had also been a fear that had the government not delayed the SI and developers had made moves to convert commercial property, but those conversions were eventually stopped via the Article 4 Directions, councils could have been facing huge compensation claims from developers who would have had their residential plans scuppered. In the Property Week report Westminster Council estimated those claims could have run into the tens of millions of pounds in its area alone. Having the time to apply for exemptions means such claims should be kept at arm’s length.

However, the article highlights more worries for cash-strapped councils. Councils cannot charge for planning permission under Article 4 rules, but it is thought many of these conversion schemes will be complex putting additional strain on council resources.

For developers, the original May 2016 deadline remains in place which means conversion schemes have to be substantially underway before it expires. It is therefore unlikely that developers will now enter into new works for fear of not meeting the deadline with the likelihood that current schemes could be shelved if the PDR extension is not implemented.

Some observers believe the move to make PDRs permanent is highly likely because it fits with the government’s deregulatory agenda whilst others are worried about the impact on the local economy if companies are forced out whilst businesses which rely on a vibrant business community such as sandwich shops, bars and restaurants would also be impacted.

Whilst deregulation does provide developers with greater flexibility, unchecked development can clearly have a massive impact on both a local area’s economy and the very make-up of its social fabric. We are hopeful for a balanced outcome to this latest chapter in the PDR story, watch this space, we will report back when we uncover other interesting details.

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