Permitted development rights allowing a change of use from offices B1 (a) to residential (C3) were initially introduced for a period of three years from 30 May 2013 to 30 May 2016.
One of the most significant proposals in a recent consultation document known as ‘the red tape challenge’ is that permitted development (PD) rights for certain changes of use will be extended, to “help ensure the planning system is proportionate and a planning application is only required where this is genuinely justified”.
First, it is suggested that existing PD rights allowing offices to be converted into new homes should be made permanent. Having been introduced temporarily in May 2013, the change of use from office use (class B1 (a)) to residential (C3) would be permitted beyond the original 30 May 2016 expiry date. Developers would have until May 2019 to complete conversions.
Existing exemptions for areas the government consider to be ‘strategically important’ are also to be removed. Ministers had previously exempted 33 areas across 17 local authorities. Conversion of offices in the City, Westminster and surrounding boroughs to ‘exclusive’ residential use could resultantly arise.
An Estates Gazette report in late summer 2014 highlighted that the combined number of applications (including conversions involving both demolition and refurbishment of offices) in the capital had approximately doubled since the new rights were introduced. Applications for conversion by refurbishment had increased over tenfold, with almost 90 per cent of central London applications being made through the new PD rights.
A number of local planning authorities initially appeared reluctant to grant prior approval. In July 2014, an analysis of appeals to The Planning Inspectorate showed that at least 42 appeals (equating to in excess of 600 homes) had been lodged against Councils’ decisions to refuse applications under the new rules. In a written ministerial statement in February 2014, Planning Minister Nick Boles had commented that some authorities “do not appear to have applied the correctly intended tests [for prior approval]”.
It seems not for the first time decisions taken at the top have not been filtered down properly at ground level, the same happened when the HMO rules came about there was a national definition of what a HMO should be and this was compounded by a local definition which made the whole thing a bit of a mess, very few understand what is an HMO.
Despite this blockage, there has been enough persistence from developers who have hired very smart planning consultants who do know the rules very well and have friends in the council.
We as a company are feeling the pain of office space disappearing. Our last serviced office in Westbourne Grove has now been transformed into a 20 luxury apartment block where one bedrooms start from £1.36m upwards. We were left with no choice but to move offices, and so we transferred our office to Marble Arch Tower, in Marble Arch. However here too the building has now been earmarked for a 408,000 mixed use scheme which is due to commence development shortly. So we will be made homeless again for the second time.
Figures in a recent report from property services group DTZ have shown that the availability of office space in central London has fallen by 20% in the last year. So, as competition for commercial space in London hots up, occupiers are repeatedly finding themselves falling victim to gazumping – losing out to companies making better counter offers along the line. This is very frustrating and costly to a company.
We purchased an office block which had PD rights to convert into four residential flats leaving the commercial on the ground floor untouched. The property came subject to leases, already in place, with some expiring very close to the expiring of the PD date in May 2016.
The Lessees had almost started a union and were sitting tight on their leases refusing to move out, some of which are expiring close to the expiry of the planning permission.
The Jewish money lenders who lent us the bulk of the money to purchase this building were concerned for their security and wanted to visit the property, they have a very hands on and personal approach to money lending. It is a family business and they have been in the game of money lending for several generations and trace their roots back to the Middle East, I speculated their ancestors were probably the ones who were practicing money lending during the times of Jesus. That reminds me of course of the famous story of Jesus kicking out all of the money traders from the temple.
They looked at the property and gave their advice, I always pay careful attention to any advice from them. They have been in the property and money game for generations and know how to preserve wealth not for one lifetime but many.
Once during a conversation I asked why they were in the money lending business which only generates a 12% ish return for them. They then confided in me this is only the spare off shore money which they are lending out. It is sitting in another country with the primary aim of keeping it safe. It earns nothing over there and so their bank provides a cross guarantee and they lend the money on London property. They lend to developers and investors, who typically purchase 20-25% below market value. They only lend up to 70% of the discounted value.
This means they lend only 50% of the open market value, which means their money is very very safe. Probably more safer than it sitting in the bank given the current situation.
In the event of a downturn the developer will feel pain, they will not as their model is practically immune. I also discovered they own the freehold of many blocks in central London. Here also they are pretty much guaranteed the service charges and ground rents, for if anyone refuses to pay they simply write to the mortgage lender who promptly pays and adds it to the mortgage. Every time a lease is renewed this is a cherry on the pie for them.
Both these models are immune to market fluctuations, these will burn the developers and investors but leave this family unscathed, these two business models are designed to preserve wealth.
Therefore I pay careful attention to any advice given. They suggested we explore the idea to dispense with the planning permissions and keep this as offices given the rents have risen and are still on the rise. The rents it seems are pretty much on par with residential rents.
If the office idea or rent is not on par with the residential, they suggested we do a very cheap conversion on two of the flats very quickly and rent them out, this will mean the council will almost be forced to convert the rest of them to residential rather than having a ‘messy block’.
This was something I also have been toying with, but have received the stamp of approval of the Jewish money lenders.
You never make money following the herd, at times its important to step outside of this circle and take the advice of someone who's been in the trade for longer than you can ever be.