For those wishing to reimagine how they use their real estate there are a host of opportunities, challenges, and considerations to be mindful of. In this series Hogan Lovells will help you navigate these, considering the matter from the perspective of a variety of jurisdictions, and different asset classes.
Here we start with some of the key factors to be addressed when repurposing property in England.
Title is still important!
The legal title can sometimes be an afterthought when repurposing existing buildings, particularly if the footprint of the building isn’t changing, but we recommend looking at this early on. Key things to be aware of are:
- Use restrictions We frequently see title restrictions on use, often in historic documents but also in newer, mixed-use schemes where the user mix across an estate or campus is more tightly controlled. Many of these restrictions will not be relevant unless a building is repurposed, so you may not be aware of them. Historic restrictions can usually be insured against, but other restrictions (particularly in a headlease) may need to be renegotiated. In both cases it’s better to address these issues early on to avoid wasted design and other costs, and to improve your negotiating position if you do have to negotiate third party consent.
- Existing occupiers If your repurposing plans require the whole building back, then you’ll need a strategy for getting vacant possession, which may involve serving break notices, dealing with leases protected under the Landlord and Tenant Act 1954, and potentially negotiating early exits. If you can work around other occupiers then check the terms of their existing leases; usually redevelopment of the building around them will be permitted but there are likely safeguards (e.g. maintaining access) and consultation requirements to factor into your programme.
- The bigger picture How will the repurposing interact with the building’s surroundings? For example, will it increase the intensity of servicing required (e.g. deliveries for life sciences use)? Will your contributions to an estate service charge increase? If the existing building benefits from shared facilities (e.g. a shared basement or other utilities), can they support the new use and will anything need to be done to mitigate the impact on nearby occupiers?
- Rights to light Clearly if you’re building up, then consider commissioning a specialist rights to light report and separate legal report. But less radical changes – such as creating a roof terrace or perhaps installing new ventilation or other plant and machinery on the roof – should also be considered for any impact on rights to light. If considered early on, often you can mitigate any constraints and potential objections, avoiding additional design fees later and potential delays.
Getting your use right
Whenever you’re changing the use of a property, it’s imperative to be clear on the planning permission. However, this may be simpler than it first appears:
- Is planning permission required? Whilst planning permission is usually required for all material changes of use, there can still be a lot of inherent flexibility. Changes of use within a use class don’t usually require planning permission and given the breadth of some use classes that can give rise to a lot of options – for example class E allows changes from retail to gyms, restaurants, or offices.
- Are there permitted development rights? Permitted development rights – or PD rights – grant blanket planning permissions for certain types of development, including many changes of use. As a result you can usually, for example, change a building from office use, to residential, without the need to secure planning permission. There are, though, limits linked to some PD rights including limits on the amount of floorspace which can be changed, and an increasing number of local planning authorities don’t just let you make the change, but require some engagement with them first. Whilst in some cases this is simply a notification requirement, in others there is a “prior approval” process, requiring you to secure confirmation from the LPA that they are happy on a range of topics. However, as this list of topics is usually very short, LPAs have far less discretion when considering a prior approval as compared to a planning application.
- Do you need a new planning permission? Where there are no PD rights, and the use is one requiring consent, then it will be necessary to secure an individual planning permission to authorise use of the building, following an application to the LPA. Whilst this can take longer, and be more costly, as well as sometimes being unpredictable as to whether the LPA will grant consent, you will at least end up with a permission specifically dealing with your proposed use of the building. This can be especially useful – and often the only option – when dealing with emerging uses, which may not fall neatly into existing use classes.
What about physical works?
Often the focus around repurposing is on the use, but it’s just as important to make sure you have any planning permission needed for physical works (although this isn’t usually required for internal works). Even relatively minor works to change facades may require planning permission. As with uses, there may be PD rights available, but you must take care to ensure that any external physical alterations have the necessary approvals.
Planning pitfalls
There are, though, a few key things to keep in mind, planning wise, when repurposing.
First, are there any conditions to be wary of? Conditions not only override PD rights, but can also mean that you need planning permission where you wouldn’t otherwise. For example, if there is a condition saying that you can only use a building as office, you will need a new permission, or to vary that condition, irrespective of the new use proposed. Conditions can also prevent certain physical changes, such as prohibiting the subdivision or amalgamation of spaces. Likewise, planning obligations can impose additional requirements which can bind the land even if the use is changed, or can limit the scope to change uses, without a deed of variation. As a result, existing permissions and legal agreements need to be checked carefully to ensure they don’t impose restrictions on use or works.
Conditions and planning obligations can also causes hurdles in the form of operational requirements. It is not at all unusual for there to be requirements around noise, servicing, parking, or other operational factors. However, operational requirements which work for one use may well cause significant issues for another. Thought should be given to whether it is necessary to vary any such requirements to enable the new use to begin.
Finally, article 4 directions can be used by LPAs to exclude PD rights within their administrative area – either the whole area or part, for example where they are concerned about the implications the rights would otherwise have on the balance of uses. Remember to check whether there are any such directions before assuming PD rights are available.
Construction
- Procurement route Before commencing any material construction works at its property, an owner should consider which procurement method is most suitable. While there are considerable advantages for the owner in implementing design and build in terms of risk transfer, that risk transfer will attract a premium or material carve-out or assumptions from tenderers leading to challenges to the budget or uncertainty as to cost. Two stage tendering is likely to produce better outcomes in terms of reducing the level of risk and consequent uncertainty for owners.
- Risk transfer The risk of the existing structure and other pre-existing elements of the premises will be a key area of concern for tenderers. Ideally an owner will look to transfer this risk to its contractor and might seek a warranty which would encompass not only the current work but also the condition of the pre-existing structure. It is unlikely that competent and experienced tenderers will accept this wholesale. If owners are not to be left with significant uncertainty around cost and programme they should undertake detailed surveys of the premises which can be shared with tenderers. The surveys will set a baseline of information that tenderers will be aware of in agreeing their contract sums and completion dates.
- End user requirements End user requirements will differ depending on the new use. Conversion to data centre or life science usage is likely to involve significant work to building services and possibly the installation of specialist equipment. There will be a greater focus on achievement of performance specifications and detailed commissioning procedures for these elements of the works. Residential development will involve the provisions of new homes warranties and, if the repurposing works will result in the premises becoming a Higher-Risk Buildings (that is, at least seven stories or 18 metres in height with at least two residential units), an enhanced building control regime will apply to the works. The enhanced building control regime introduces a number hard-stops where Building Safety Regulator approval is required before works can proceed or completion confirmed. These will need to be factored into programmes.
Finance
If the property is secured, lender consent will be required for any change of use and resultant works but in an environment where refinancing and indeed, complying with existing covenants is challenging, repurposing the property may be the key change necessary to unlock liquidity and avoiding enforcement by the lender.
Conclusion
Whilst there are undoubtedly some legal issues to consider when exploring the repurposing of buildings in England, there are also real opportunities, and we at Hogan Lovells are perfectly placed to help you navigate all the nuances, whilst you breathe new life – and value - into your assets.
Authored by Hannah Quarterman, David Horan, Jo Solomon and Gillian Thomas.
