Adjusting to the impact of COVID-19 in the commercial landscape—changes to the use classes system

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In the United Kingdom, as the pandemic somewhat starts to ease—we find ourselves venturing back to our former lives. However, with the emptiness of previously bustling areas, boarded up buildings and ‘To Let’ signs dominating the commercial landscape, are a stark reminder of what we have been through and yet there is hope on the horizon.

It is clear that a return to ‘normality’ is not going to happen overnight and it will require a fundamental change in how we have historically worked and lived in order to achieve that goal. Businesses are now turning their thoughts to how they will operate going forwards and what that will mean for both the workforce and the workplace. Hybrid working is being hailed as the new normal. Shopping online is now embedded in our society. The commercial, professional, service and retail markets are looking to embrace creative solutions to fill their empty real estate with local authorities keen to encourage and build environments which attract investment from a wide range of backgrounds.

Development and change of building use

In England, planning permission is required for the “carrying out of any development on land”. Development is defined as the “carrying out of building, engineering, mining or other operations in, on, over or under the land or the making of any material change in the use of any buildings or other land” (section 55(1), TCPA 1990). As such, there is a basic requirement for planning permission to be obtained if there is a material change of use of any buildings or land such as a change from offices to an alternative use. The system, as it stood, was rather complex in nature.

The theory behind the Use Classes Order was that the grouping of similar uses together into one class where changes within that class would not be required, would alleviate the pressure on the planning system that would be caused if every change of use required planning permission.

• For additional information, see Practice note: Changes of use and the need for planning permission.

While this is an improvement on a situation where all changes need to be considered by the local authority, it is still a relatively complicated procedure. Many criteria need to be considered such that the owner will often need to take specialist advice as to whether the change it proposes is covered by the provisions of the Use Classes Order or whether a planning application needs to be submitted.

The new use class system

As such, on 1 September 2020, the Government implemented significant changes to the use classes system in England through the new Town and Country Planning (Use Classes) (Amendment) (England) Regulations 2020 (SI 2020/757) (Regulations). Where the purpose of the land or building fell within one of the following original use classes: Class A1 (shops), Class A2 (financial and professional services), Class A3 (restaurants and cafes) or Class B1 (Business)—it will now be treated as being used for the corresponding new Class E (commercial, business and service).

• For additional information, see Practice note: Town and Country Planning (Use Classes) Order 1987 from 1 September 2020.

The changes will make it easier for buildings to be repurposed in response to the various demands of landlords and tenants due to circumstances brought on by COVID-19. For landlord and tenant relationships, the Regulations may prove problematic. Tenants will no doubt be in favour of the new Class E and the flexibility it affords them should they wish to repurpose the space. Landlords on the other hand will need to be cautious when granting new leases to ensure the permitted use is limited to the tenant’s specific business. Class E could be too broad a user clause and reduce the landlord’s ability to control their portfolio or estate. Charging for a licence to change use would also be a thing of the past. As such, we may see a return to defining use by description rather than the more recent method of specifying the use class.

Landlord’s may find their business park gradually changing in nature as new activities arrive on the estate taking advantage of the wider use class. We may see retail parks with non-retail and light industrial uses becoming more prevalent. This may reduce the appeal for other retail tenants leading to empty units and a further decrease in the park’s cachet or it may, as the government hope, lead to diversification in the park’s occupants and breathe new life into these now deserted areas. For example, take up for light industrial use this year is already the strongest on record with high street retailers taking on more warehousing premises to cope with the change in how their customers shop.

The Regulations will, however, affect the ability of local authorities to make suggestions in their local plans to shape the way an area will develop. The local authority may wish to encourage workshops and small cafes to boost local employment, but they may end up with neither. It all depends on the individual landlords who may not be interested in the wider picture.

Landlords should take heart that even changes within Class E are constrained by:

• conditions attached to existing planning permissions;
• section 106 agreements;
• legal constraints such as restrictive covenants; and,
• any associated physical alterations may still require planning permission.

The Regulations are likely to impact investment strategies for landlords and developers who can have more confidence in proposing developments and moving forwards with pre-lets without the risk of planning rejection. However, the increased range of potential occupiers and the interchangeability of uses, is likely to see a levelling out of valuations as ’desirable’ use properties will no longer be able to command a premium.

In predominantly business and financial areas such as Canary Wharf and the City of London, the reduction in demand for office space and the decrease in footfall for associated businesses means landlords and tenants alike are looking for alternative uses for their premises.

Sitting alongside the changes to the Use Classes Order, the Town and Country Planning (General Permitted Development) (England) (Amendment) Order 2021 (SI 2021/428) (2021 Order) came into force on 21 April 2021. Amongst other changes, the 2021 Order inserts Class MA into the GPDO 2015. Class MA permits development consisting of a change of use of a building and any land within its curtilage from a use falling within Class E to a use falling within Class C3 (dwellinghouses).

• For more information, please see: Legal update, Changes to permitted development rights in England.

Adapting and creating a better future

Enabling a change of use from commercial, business and service to residential without a requirement for express planning permission seems likely to encourage a change in strategy by local authorities as they seek to encourage a greater range of investment in previously predominantly business areas. Already the City of London has announced proposals to modernise the Square Mile which includes a target of creating 1,500 new homes by 2030 along with increasing retail, food and beverage opportunities to encourage a new seven-day a week occupation of these areas.

Going forwards commercial real estate owners must think creatively. They must make use of the new legislation to reimagine their real estate footprint and provide an environment attractive to a variety of workers, residents and visitors and thus safeguard their survival in this changed world.

This article is co-authored by Senior Editors in the Practical Law Planning Team (free access).