We noted earlier this year that there would be no more office to residential changes of use under ‘Part O’ Permitted Development rights under the new General Permitted Development Order 2015.  At the moment, the right to switch from B1(a) office use to C3 residential with only a prior approval requirement falls away in May 2016.

More or Less?

There have been around 900 applications for Part O prior approval in each quarter of the last year.  As funding for new Part O scheme shrinks due to uncertainties (see below), the Party Conference season is expected to yield a pronouncement on whether Part O rights will be extended.  They may be carried over on the basis that:

  • existing Part O rights survive for 3 years from prior approval (or deemed approval);
  • new approvals are subject to a requirement to deliver some of the Government’s 200,000 Starter Home commitment;
  • there is a limited ability to consider the effect of the loss of strategically significant office supply at the prior approval stage;
  • ‘exempted areas’ are retained.

Do or Die

In the meantime, developers and investors must work on the basis that the Part O rights cease to be available after 30 May 2016 unless the ‘use of the building falling within C3… was begun’ by then (under article 2 of the GPDO 2015 and paragraph O.1 of Class O).

What constitutes being ‘in use’ (and how much of any converted building it should cover) is unclear.  The courts have been clear that a change to residential may be taken to have occurred before the ‘relevant premises’ are brought into actual occupation (which includes units being brought into a marketable condition).  The extent to which empty units will be considered ‘in (C3) use’ will potentially be influenced by the extent to which:

  • the residential use is capable of being carried on; and
  • the previous B1(a) office use is no longer realistically capable of resumption.

If the Part O regime is not extended, the values at stake mean that the answer will inevitably be tested in the courts.

Die Another Day?

Article 4 Directions can be put in place withdrawing permitted development rights.  Whilst the Secretary of State can – and regularly has – prevented them being confirmed, several are now in effect.  There has been confusion around their effect – do they kill the rights or extend them? The GPDO 2015 now states – article 4(2)) – that where a Direction comes into force it will not affect the carrying out of the development where “the prior approval date occurs before the date on which the direction comes into force and the development is completed within a period of 3 years starting with the prior approval date“.  This ensures that Part O prior approvals pre-dating the coming into force of a Direction will remain available regardless of the Article 4 direction.  But, and it is an important but, it does not push the drop dead date for commercial-residential permitted development beyond 30 May 2016.  Where investors and developers know that buildings cannot be brought ‘into use’ before 1 April next year, their valuation assumptions should therefore reflect the risks.

CIL effect

Developers are still regularly, and wrongly, advised that CIL will not apply to Part O changes of use. Care needs to be taken about the assumptions around, and evidence of, lawful use for the relevant period before the change to C3 use takes place to avoid a shock on CIL.