Key Aspects in Changing the Use of Commercial Property

Youssef Hammouda
Trainee Solicitor

The commercial property landscape is continuously evolving, driven by shifts in market demand, and economic trends. Landlords and tenants face major challenges when they change a property’s use. These changes require thorough financial planning and compliance checks.

This article explores key accounting considerations when repurposing commercial property, including tax implications and financial reporting changes.

Overview of the Planning Use Classes

The Principal Act is The Town and Country Planning (Use Classes) Order 1987 (as amended) which is designed to regulate land use and development in England by categorizing different types of land or building uses into specific Use Classes. Planning use classes are categories of property usage designed to control the use of land and buildings for specific purposes. Each property usually requires a planning permission to determine which use class applies. Originally the Town and Country Planning (Use Classes) Order 1987 (as amended) classified classes included, but not limited to:

• Class A1. Shops: use of retail sale of goods other than hot food,  post office, sale of tickets or as a travel agency, sale of sandwiches or other cold food for consumption off the premises, hairdressing, and display of goods for sale,
  
• Class A2. Financial and Professional Services: use of financial services, professional services (other than health or medical services), and any other services (including use as a betting office) which it is appropriate to provide in a shopping area.
  
• Class B1. Business: Use for all or any of the following purposes as an office other than a use within class A2 (financial and professional services), for research and development of products or processes, or for any industrial process.
  
• Class B2. General Industrial: Use for the carrying on of an industrial process other than one falling within class B1.
  
• Class C1: Hotels and Hostels: Use as a hotel, boarding or guest house or as a hostel where, in each case, no significant element of care is provided.
  
• Class C2: Residential Institutions: Use for the provision of residential accommodation and care to people in need of care (other than a use within class C3 (dwelling houses)), use as a hospital or nursing home, and use as a residential school, college or training centre.
  
• Class D1. Non-residential institutions: any use not including a residential use like use for Museum, public library, public hall or exhibition hall, and  display of works of art.
  
• Class D2. Assembly and leisure: use as cinema, concert hall, casino, and dance hall.

The Government made key classification changes on 1 September 2020 to simplify planning and affect property valuation and financial reporting. Following the changes, the main categories now include:

• Class B: general industrial and distribution uses;
• Class C: continues to include various types of residential uses;
• Class E: this includes a single and very broad new use class including retail shops, financial and professional services, offices, research and development, cafes, ‘light’ industrial uses suitable for a residential area, clinics, health centres, gyms, recreational and indoor sport
• Class F: includes various classes including schools, non-residential learning, places of worship, local community uses.
• Sui generis uses: these are certain types of uses which do not fall within use classes.

When Is Planning Permission Required?

The Town and Country Planning (Use Classes) Order 1987 (as amended) provides that any development of land requires a planning permission. Section 55 of the Town and Country Planning (Use Classes) Order 1987 (as amended) defines development the carrying out of building, engineering, mining or other operations in, on, over or under land, or the making of any material change in the use of any buildings or other land. What constitutes development depends on whether this change is material or not. Although no Act defines a material change, several case laws address whether a change of use is material. The decision-maker assesses each case individually, based on its specific facts and circumstances.

When is Planning Permission not Required?

A change of use within the same class does not amount to development, and therefore does not require planning permission. Furthermore, in certain matters, a change of use can proceed without planning permission under the General Planning Development Order 2015 (hereinafter GPDO 2015) also known as Permitted Development Rights (hereinafter PDRs). PDRs allow some minor alterations to a building’s use to take place without the need for a formal planning application. However, the scope of the GPDO 2015 is only limited to England only. But in Wales, the Town and Country Planning (General Permitted Development) Order 1995 as amended is the relevant Order. Schedule 2 of the GPDO 2015 lists several categories where planning permission is automatically granted, even though they qualify as development under the Town and Country Planning (Use Classes) Order 1987 (as amended).

Key Legal Considerations in Changing the Use

1. Planning Permission and Building Regulations

Planning Permission: as provided, if the change of use is not within the same class and falls outside the scope of PDRs, a formal application for planning permission will be required. if no application has been submitted to the planning authority this will be considered as breach of planning control. The breach of planning control occurs in two situations, the first is when development is conducted on a land without the requisite permissions and consents. The second is when any condition or limitation attached to the planning permission is not complied with or not carried out accordingly.

As a result of this breach, the planning authority has the power to take enforcement action against the landlord, occupier, or any other interest party if they become aware of unauthorised development. If the local planning authority decides to take enforcement action for the breach it must serve notice. The authority must serve notice for unauthorised building works within four years of the breach. For a material change of use, the authority must serve notice within ten years of the breach.

Building Regulations: in England and Wales changing the use of a commercial property may trigger the need for compliance with The Building Regulations. These Regulations apply to any “building work”. Part 2 of the Regulations provides that building work including, but not limited to:

1. the erection or extension of a building;
2. the provision or extension of a controlled service or fitting in or in connection with a building;
3. the material alteration of a building, or a controlled service or fitting

As a result, landlords should ensure that any changes comply with the latest building codes to avoid fines or penalties.

2. Lease Terms and Landlord Consent

Lease Restrictions: tenants considering a change of use should carefully review their lease agreements. Many leases include financial clauses restricting alterations or requiring landlord approval for cost-impacting changes in property use. These clauses are typically in place to protect the landlord’s interests, ensuring the property’s value and tenant mix remain intact.

Landlord Consent: in many cases, the tenant must seek the landlord’s consent to alter the use of the premises. Failing to meet financial reporting obligations may breach lease terms and lead to penalties or compliance issues for landlords.

Conclusion

Changing the use of a commercial property can offer substantial opportunities for landlords and tenants, whether by enhancing property value or aligning with market demands. Yet, it is important to navigate the legal complexities of the planning process, building regulations, and lease agreements is essential to ensure the change is lawful and compliant.

For specialist advice and support. Please get in touch with our corporate solicitors in London by contacting the GOOD LAW INTL office.

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