Conveyancing Issues when buying a converted building (Commercial to Residential)

Earlier this year the UK government announced planning reforms which will permit property owners to convert a wider range of commercial properties without first gaining planning permission from the local authority for a change of use.

Previously, only office buildings could be converted however under the new proposals, retail and industrial properties can now be converted into residential dwellings as well.

How is commercial property defined?

Commercial property is any building that turns a profit. For example, a warehouse, gym, supermarket, cinema, office block or local convenience store.

In any case where an owner wishes to convert commercial premises into a residential dwelling, planning permission may need to be obtained prior to any building work or conversion taking place. Failure to obtain the necessary permissions could lead to a planning breach with all the associated legal strife that follows.

In some cases, commercial premises may be advertised for sale with planning permission already granted and a conveyancing solicitor will be able to advise you if there are any associated legal implications you should be aware of.

Is planning permission always required?

In 2013, the rules surrounding planning permission changed which meant that some kinds of property could be converted without the need for full planning permission. These developments come under the umbrella of Permitted Development Rights (PDRs) and whether they are applicable depends upon the ‘class’ of commercial property the building falls into. PDRs are now being extended to include office buildings, retail and industrial properties.

Class of commercial properties

• Class A – Commercial and other retail premises
• Class B – Factories, offices, warehouses and workshops
• Class C – Residential institutions such as hotels and hostels
• Class D – Non- residential institutions, assembly and leisure

The above categories are then sub-divided into further classes:

• Class A1 – includes shops, hairdressers, dry cleaners
• Class A2 – financial premises such as banks, accountants or estate agents
• Class B1 – offices/light industrial suitable for residential areas
• Class B2 – light industrial buildings
• Class C3 – refers to residential property

Even where planning permission is not required you will still need to seek ‘prior approval’ from the local authority. It is also worth bearing in mind that it is the change of use that is permitted not the conversion itself. If you still need to knock down walls or build an extension you may still need to obtain planning permission.

Although the works must adhere to Building Regulations, developers have free rein over matters such as internal or external space, daylight, external noise, air quality and location. It is a sad fact that buildings of this nature are often result in lower requirements than newly built homes.

How is planning permission obtained?

You should apply to your local planning authority (LPA) department of your local authority. Application fees and procedures differ from one local authority to another as do timescales, so it is advisable to engage with them at the earliest opportunity.

If the building is listed or situated within a conservation area then PDRs will not apply and you will have to go through the full planning permission process, in addition the LPA may request full architectural drawings.

A leasehold property will need at least 70 years remaining on the lease if a mortgage is needed to purchase the property. The permission of the freeholder will also be required before any work can begin.

Can I get an ordinary mortgage?

There are generally two main funding options if you are considering buying commercial premises with a view to converting it into residential accommodation.

• Self-build mortgage – despite its name, this type of mortgage can be used to fund the conversion of property as well as building one from scratch. This sort of mortgage provides an initial amount for the purchase of the property and then pays the rest of the money in stages. These stages are paid in arrears which means you will need to have the funds up front – the mortgage provider will reimburse you once you have provided evidence the works have been completed to a specified standard.
• Bridging loan – This can cover all of the work upfront however, this type of funding comes with much higher rates of interest which can really sting if the project overruns. Once the property conversion has completed you have the option of refinancing on a much more reasonable standard residential mortgage.

If you are buying a property that is already converted, then providing the builder has adhered to planning regulations and any other permissions needed pertinent to the location, then, in most cases, you should be able to obtain a standard residential mortgage.

Buying a converted property – mistakes to avoid

If you need to obtain a mortgage in order to buy a property there are a list of properties that mortgage providers do not particularly like, for example:

• Homes of unusual construction – any building not of standard brick and mortar construction may result in a lender refusing a mortgage application.
• Flats over shops, restaurants or offices – basically any property where other people have a right of access.
• Brownfield sites – lenders do not like properties of a former industrial nature, this is generally because the land may be contaminated. A solicitor or conveyancer should check the certificates to prove the land has been decontaminated.
• Character homes – converted buildings such as lighthouses, churches, fire stations, schools, shops or pubs may need a mortgage from a specialist lender.
• Size – because the government’s own minimum space standards cannot be imposed under PDRs , flats are often significantly smaller than the 37 square metre minimum set by the standard. This may pose problems when trying to obtain a mortgage.
• Limited mortgage options – lenders are unlikely to lend on homes less than 30 square metres with some adopting a 37 square metre space threshold.
• The condition of the building – under current PDRs external changes to a building are not permitted. This means that many office buildings may have external cladding panels that today would not be able to be installed. Your solicitor should obtain written assurance from the builder, or if leasehold, the landlord, that they are safe.
• Leaseholder restrictions – your solicitor should look carefully into the length remaining on the lease and the terms of it, metering arrangements, council tax, and service charges.
• Service charges/management fees – if the property is leasehold, your solicitor should explain the annual fees payable for service charges and/or management fees. The average charge in London is between £1,800 – £2,000 per year however, this varies around the country. It is generally thought anything over £5,000 per year is excessive. Your solicitor should confirm whether there is any further work planned to the building and ask for a list. It is good practice for your solicitor to ask the landlord to set out estimated service charges for the next five years as well as provide documentation confirming service charges for the preceding three years.
• Repair bills – if the property is part of an old office block or other ex-industrial building, you may find you could be faced with repair bills within a few years. It is a careful balancing act to know whether to spend money on repairs which you may never see a return on or failing to repair and not being able to sell it on at all.
• Building regulations – Your conveyancing solicitor should check and confirm that any Building Regulations have been formally signed off.

A solicitor should also make sure that the conversion has not flouted planning laws and that it has not been converted in flagrant breach of change of use restrictions, in general and also  in places such as:

• Conservation Areas
• National Parks
• An area of national outstanding beauty
• A listed building/schedule monument
• If the property is within an area of scientific interest
• A safety hazard area
• A military explosives area

Lockdown has been hard for everyone but can be much harder for people living in tiny flats and studio apartments particularly those without balconies. With the increase of working from home, you should, perhaps, give further consideration to the internal soundproofing of a converted commercial building or office block. It may not be as good as it should be which would be devastating to find out after you have moved in and can hear every conversation the neighbours have.

Finally, by setting a minimum standard space for homes, the law has recognised that very small spaces can be detrimental to health and wellbeing. Because it is much less obvious than the risk from, say, fire, having space to move around should not be underestimated because it can be just as devastating. Local authorities have the power to inspect potentially unsafe dwellings, and can, in extreme cases, take enforcement action. You should mention it to you solicitor if you are concerned.