Government shakes up planning rules on changes of use

The Town and Country Planning (Use Classes) Order 1987 has with some amendments been a settled part of planning law and provided a predictable basis upon which land owners, developers, tenants and planning authorities have regulated the basis of changes of use of property for many decades. As part of the Government’s “Project Speed” a new set of amendments to the Use Classes Order are to take effect from 1 September 2020. These changes go beyond mere tinkering as has occurred on previous occasions and represent a major shift in approach by Central Government towards land use.

The overall philosophy is designed to encourage flexibility in property use, particularly in town centres, seeking to overcome the ongoing decline of any town centres which has been exacerbated over recent years by factors such as high rates, increased concerns over traffic pollution and restrictions on parking, the trend towards online shopping at the expense of retail outlets and more recently the impact of the COVID19 lockdown. The new regulations establish two new very broad Use Classes which allow changes of use without having to obtain planning permission. There are of course some limitations on the scope of these changes of use but the message is clear that flexibility of approach is to dominate future thinking.

The first broad group is designated Class E within the Use Classes Order and covers commercial, business and service activities drawing together retail activities, restaurants, offices, financial and professional services, indoor sports, medical and nursery uses and as a broad sweeper up “any other services which it is appropriate to provide in a commercial business or service locality”.

The bulk of the historic Use Class A (which dealt mainly with retail activities) disappears as does Use Class B1 (covering offices, research and light industrial activities).

A new Class F1 pulls together a wide range of learning and non residential uses, covering schools, libraries, museums and art galleries, places of worship, public halls, exhibition centres and law courts.

A new Class F2 covers ‘community uses’ permitting transition between small convenience stores, community halls or meeting places, outdoor sports venues, indoor or outdoor swimming pools or skating rinks.

Some uses faces tighter controls. For example, pubs, wine bars, takeaways, are designated as sui generis, so any previous opportunity to change use under the old rules is replaced by the need to seek planning permission.

The effect of the Use Classes Order is that changes of use covered by it are deemed not to be development at all, unlike permitted development rights where there is a deemed planning permission. Whilst many of the headlines revolve around the Government’s ambitions to revive town centres, the new rules are of general application and apply equally to other areas including rural centres as well as out of town business parks. In the latter case, this could lead to the introduction of retail activities into traditional office business parks.

These new rules provide both opportunities and challenges.

Impact on councils

Local planning authorities whose policy assumptions have been built upon the long standing Use Classes definitions are going to have to urgently rethink their approach as, to a large degree, their control over the mix of uses within a town centre will be reduced substantially.

For new build commercial units, local planning authorities still have a degree of control notwithstanding the operation of the new rules under the Use Classes Order. It is already established practice for local authorities when granting planning permission to impose planning conditions that notwithstanding the terms of the Use Classes Order a planning permission should only authorise the specific activities which are mentioned in the planning application and so effectively exclude the operation of the Use Classes Order.

Such an approach to the grant of new planning permissions may result in increased conflict between local planning authorities and developers who may resist attempts by local planning authorities to introduce through the back door restrictions equivalent to those now removed by the 2020 amendments.

What weight will be applied to the new Use Classes Order and the policy behind it remains to be seen but it seems that the local planning authorities seeking to exclude the operation of the new Use Classes Order would have to be very careful to justify their position. Generalised concerns about the loss of retail space in a town centre environment may no longer carry as much weight as they have in the past. More concrete justification for the exclusion of the new flexible Use Classes Order will need to be produced by local planning authorities.

For local authorities who have no immediate opportunity of updating their local plans, such additional grounds for opposition to proposed developments may be difficult to establish. In the “plan led” system existing policies towards protection of the town centre retail may be insufficient to overcome the change of national policy imposed by the 2020 Use Classes Order.

Those responsible for town centre management and regeneration may be tearing their hair out at the prospect of their carefully considered plans being thrown into the air by these latest reforms.

Impact on investors and occupiers

It is uncertain at this stage what effect the freedom to make such changes of use will have on the established assumptions which give rise to rental valuations and investment valuations for commercial properties. Landlords sitting on redundant shop premises may well welcome the opportunity to seek alternative uses, something which would be unheard of in many local authorities given existing planning policies.

You could substantially change the appearance of town centres which some may argue is no bad thing given the dire condition of some of our high streets. It remains to be seen whether these flexibilities would have unwanted unintended consequences in terms of long term patterns of use of town centres, demand for parking and traffic movements.

It must not be forgotten that in shopping centres or business parks there is often one dominant land owner who has its own mechanisms to control the types of use to which its properties are put through lease covenants. Therefore to some degree the freedoms granted by the Use Classes Order may be only partially available. A landlord of an established shopping centre may be unwilling to dilute its reputation as a destination retail venue and seek to ensure that the introduction of alternative uses is carefully controlled.

Funders will have to consider the impact of the use variations on the value of their security.

Some landowners may find themselves in conflict with their lenders over their plans for redevelopment if landlords with unwanted voids try to introduce other (less valuable) but real income generating uses into a building.

For landlords and tenants negotiating the grant of new leases, thought will be needed as to how to address the range of uses authorised by a lease. Given the broader scope of the new Use Classes E and F, landlords will have to think carefully about the impact of the tightening the authorised uses under a lease both in terms of the mix of use within shopping or business areas as well as the impact upon rental valuation and investment values if an over-restrictive user covenant is imposed. The impact on rents will differ between different areas of the country having regard to the nature of the local economies and therefore there may be no standard approach to be applied across all lettings.

Where user covenants in existing leases apply by reference to the existing Use Classes Order, landlords will be able to control attempts by their tenants to change the use to the broader range of activities covered within the new Classes E and F.

Whether that is desirable or not depends on each case and the location of the property concerned. In some cases it may be desirable for a landlord to allow more general flexibility as to use in order to shore up the investment value of the property.

Likewise controls on changes of use within leases may give rise to disappointment amongst existing tenants saddled with unwanted properties who think they can assign their leases to another business who wishes to change the activity within the premises. Where such use is prohibited such ambitions may prove to be futile even though planning permission for the change of use is not required.

No doubt there will be ongoing debate in the run up to the implementation of the regulations on 1 September 2020. Many vested interests are being challenged by the grant of such flexibility as now appears in the Regulations. This represents a fundamental challenge to the balance of control between central and local Government and the freedom of landlords and occupiers of premises to use them as they wish. To a large degree individual owners and occupiers are put in a stronger position when dealing with their properties at the expense of local government through the planning system.

People will speculate about possible unintended consequences of the reforms intended to provide greater freedom to carry out development. The controversy over the abuse of permitted development rights for the conversion of offices into dwellings resulting in the creation of poor quality micro homes is an example which many opposed to the new regulations will point to.