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Commercial to residential conversions, a new dawn!

Commercial to residential conversions, a new dawn!

Opportunities for developers and investors in property will open up as new amendments are laid down.

Michael Gove’s recently announce amendments to the General Permitted Development Order (“GPDO”) will open up new opportunities for the use of Class MA ‘PD rights' to convert from commercial use (Class E) to residential (Class C3), just confirmed by government. 

These amendments will remove the capped 1,500 sqm maximum floorspace limit and the three-month vacancy requirement which were holding up new developments and giving local authorities scope to impose road blocks. However, buildings and sites must still meet the requirements of Class MA.

Opportunities for reusing existing buildings under PD rights will allow, using Prior Approval submissions to planning authorities, the conversion of offices to a wider range of alternative uses. These are subject to far fewer conditions when compared to a full planning application. They include issues such as noise, site contamination, transport, highway impacts and flood risk.

Class MA currently allows for changes of use of buildings and land within Class E (commercial, business and service uses) to residential use (Class C3). The current upper floor area limit of 1500 sqm for these conversions is to be abolished but there is uncertainty yet as to whether there will be no limit, or a suggested increase to 3,000 sqm. At the present time building conversations have to have been vacant for 3 months prior to the submission of the applications, a stipulation that has been a roadblock to many potential schemes.

Housing and high street crises

The Government is introducing these changes in a bid to ease two issues at the same time: to deliver more housing relatively quickly and to tackle the problems of vacancies on the many struggling high streets across the country – see Planning in England: Permitted development and change of use – House of Commons Library.

There are some exceptions contained in the above information: some locations are being exempted from Class MA conversions. These include but may not be limited to parts of Central London, Greater Manchester and East Hampshire, but they will now apply in some previously excluded situations.

New opportunities 

These relaxations should open-up new opportunities for developers to create alternative uses for existing buildings and potentially redundant buildings into a whole selection of new uses. This, without the current restrictions and without the need for the long delays which are inevitable when full planning permission is required; developments should be easier, quicker, and less costly. 

The amendments will be effective from 5 March 2024 and they relate to England only. All the same requirements, conditions and current Article 4 Directions will continue to apply - an article 4 direction is made by the local planning authority and it takes away permitted development rights within a specific area or site. It usually means a full planning application is required.

Industry support

As the government launches its housing reforms package, including a focus on repurposing and developing the UK’s existing brownfield sites and the transformation of commercial buildings including disused shops and offices into homes without planning permission, insight from property lender, Together highlights broad industry support for the idea and other green improvements needed to solve the UK’s housing and energy crisis. 

According a survey* carried out by the lender, while 11% of property developers, investors and landlords are most excited to pursue commercial properties to EPC retrofit this year – the investment needed is still a major concern. Indeed, 19% of property professionals, says Together, want more Government support for brownfield development pre–General Election this year. Together found that:  

25% want Gov support on regeneration of disused buildings/sites

18% see meeting new EPC standards as the biggest challenge this year. 

21% want more tax benefits and initiatives to support commercial property market growth

18% said better access to finance to meet retrofitting plans should be a Gov priority pre-election.  

Separate analysis by Together using Searchland’s valuation data, shows the potential for 175,602 new homes in Yorkshire alone, it holds a potential development value of £53.2billion. This highlights the scale of potential for the rest of the UK, says Together, which would finally address country-wide housing shortages and give developers and investors the opportunity to breathe new life into communities and revitalise our cities and landscapes.

Elliot Vure, Director of Corporate Sales at Together comments: 

“Solving the UK’s housing crisis is fast becoming a central issue in the build-up to the General Election. Plans to expedite planning permission laws and unlock newfound residential opportunities by zoning in on brownfield sites would see more people able to access the property ladder and – so long as developers are able to fund EPC retrofitting costs – help alleviate some of the pressure around meeting climate targets. 

“The Policy Exchange think tank claims Britain needs 442,000 new homes built a year to turn the tide and make any real progress or improvement to our chronic lack of housing supply issues, so factoring brownfield sites into new government housing agendas is indeed a smart and critical move. 

“This would not only provide a solution; by levelling up in the regions to deliver growth and prosperity for future generations but also act as a clear reminder as to how important the UK’s abandoned buildings are - not just as a valuable and energy-conscious resource for housing but also a source of civic pride.

“Our data shows that there are opportunities out there for developers to meet this aim by re-using unloved and abandoned wasteland. However, what we need is a co-ordinated and common-sense approach from funders, developers, and local council planning departments if we’re going to address the issue of housing supply on a large scale.” 

Tax breaks

Certain tax breaks are available for the conversion of parts of business premises into flats. Capital Allowances are available to property owners and occupiers on the renovation or conversion of empty or underused space above qualifying shops and other commercial premises such as offices to convert to residential flats stipulated for short-term letting on a lease not to exceed five years.

Generally, when conversions are carried out to existing buildings, VAT on conversions is chargeable at the standard rate of 20%. However, a reduced rate of 5% can be applied in certain circumstances. One of these is where there is a conversion of a commercial building into a residential dwelling. VAT is then chargeable at the reduced rate of 5% on the supply of services and building materials for:

  • non-residential property conversions into dwellings or a number of dwellings
  • residential or non-residential property conversions into multiple occupancy (HMO) dwellings.
  • non-residential property or one or more residential property conversions into care homes, children’s homes, hospices etc. 
  • care home conversions to multi-occupancy dwellings
  • the renovation or alterations to vacant dwellings, multiple occupancy properties and care homes, that have been empty for three years or more.

Various residential schemes may apply for these tax breaks including, for example, on the renovation of a house that has been empty for three years or more, while the new owner lives in it. The 5% rate applies to the building work, on the proviso it is completed within one year from the date of purchase. 

Seek financial, planning and building control advice before embarking on building conversions.

*Research commissioned by Together was conducted by Censuswide research between 4 October and 13 October 2023 among 500 UK respondents who have taken out a commercial mortgage product in the past. Cheadle, Cheshire based Together has been delivering specialist secured lending for nearly 50 years, using its wealth of expertise and industry knowledge to consider individual circumstances to find a way to help its customers.


Commercial property
Planning law