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Monday, 27 July 2020

Sweeping Changes to the Planning Use Classes Order


Just before the parliamentary recess, the government rushed through sweeping changes to the Use Class Order containing the various Use Classes A to D that we have grown used to.

From 1 September 2020 existing buildings that are already used for Class A1, A2, A3, B1 and certain D1 and D2 uses will fall within a new single Class E (commercial business and service). There is also a new Class F (F1 – learning and non-residential institutions; and F2 – local community) and a new list of sui generis uses that include uses that were previously within the old use classes (bafflingly – eg pubs, wine bars and drinking establishments that were formerly within Class A4).

This isn’t a specialist planning blog and so I’m not even going to try and explain all this. I can do no better than point you in the direction of Martin Goodall’s Planning Law Blog, a most excellent resource on all planning matters. He makes some very interesting observations on the new law, both in the post and in his comments section, and provides a very useful summary of the new law.

It’s obviously too early to tell what the effects of the changes will be. No doubt in some areas they will be welcome, but there seems to be potential for a good deal of confusion in the hospitality sector as to what changes of use are permitted without the need for planning permission. 

The reclassification of some uses as sui generis, which includes pubs and hot food takeaways, means they will be subject to a greater level of planning control than before, as a change of use from one sui generis use to another requires planning permission. So for operators in this category there will be less flexibility, not more.

There’s certainly enough in this new law to keep planning lawyers gainfully employed for a considerable time, so good luck to them!

There are also issues for property lawyers to consider, not least what effects the changes might have on existing leases that refer to the old use planning order and use classes.

Much will depend on the drafting.

If the lease simply describes the use (eg “offices”) without reference to the old use classes order or the lease refers to the use classes order as at the date the lease was entered into, then there is no change in the extent of the use permitted by the lease.

There may however be implications on rent review or lease renewal, depending on what the lease says.

If the use permitted by the lease refers to the old use classes order as amended or replaced from time to time, the change now enacted by the government will potentially impact on the use permitted by the lease.

For example a reference to any other use within Class A1 would now mean any use within Class E, which is considerably wider, covering as it does retail, food, financial services, indoor sport and fitness, medical or health services, nurseries, offices and light industry.

What this means will depend on what level of control over change of use the lease gives the landlord, but clearly in some cases it could result in a much wider set of permitted uses. This too could have impact on rent review.

In new leases, landlords may now want to restrict the permitted use by describing the specific use rather than with reference the new much wider use class E, or by permitting changes of use only to certain specified uses or within specified parts of the new Class E only.

If this was meant to make everything easier, then I’m not sure it’s succeeded. Much will also depend in the planning world on how it’s all handled by local authorities.

Interesting times ahead.


Thursday, 23 July 2020

Reinvigorating Commonhold - Law Commission Proposes a Dramatic Shake-Up of Home Ownership


On 21 July 2020, the Law Commission published three reports on Commonhold, Leasehold Enfranchisement and Rights to Manage.

The aim is to make each process simpler and to offer a better deal for leaseholders.

The most eye-catching recommendation by the Law Commission is that the residential leasehold system should be replaced by commonhold, a system that could also be used in mixed use schemes.

This not only means the creation of new commonhold schemes in future, but could also include the conversion of existing leasehold schemes to commonhold.

Its proposals are contained in a lengthy document called “Reinvigorating commonhold: the alternative to leasehold ownership”.

Commonhold was introduced in 2004 (when a law passed in 2002 came into force) as a new way to own and manage interdependent properties.

It allows a person to own a freehold ‘unit’ – like a flat within a building – and at the same time be a member of the company (the “commonhold association”) which owns and manages the shared areas and structures.

Commonhold has several potential advantages over leasehold. These are:

·       Freehold ownership that doesn’t run out – unlike leases which expire and can be costly to extend. There’s no ground rent and no forfeiture.

·       Standard rules and regulations apply – which should make conveyancing simpler and cheaper. Each commonhold constitution (CCS and articles) must contain terms that are prescribed by law.

·       Owners have a stake in the wider building and don’t have a landlord – instead, owners run the shared areas together.

But despite these advantages, commonhold didn’t catch on for the reasons outlined in my blog post in 2018 following the Law Commission’s call for evidence.

The Law Commission has sought to address these concerns. It suggests that commonhold should not be looked at through the lens of leasehold as it involves a “culture change”, moving away from an “us and them” mindset, towards “us and ourselves”.

It’s an attempt to move towards the kind of system of “condominium” or “strata” ownership used in other countries and away from the often antagonistic relationship of landlord and tenant, where the “tenant” is meant to be the owner of its most valuable asset, rather than a diminishing term of years.

This is the impetus behind the recommendation to reinvigorate commonhold, so that leasehold is no longer needed.

The report makes 121 recommendations, which aim to make commonhold “not just a workable alternative to residential leasehold ownership, but the preferred alternative”.

The recommendations include allowing the conversion of an existing leasehold building to commonhold if only half of the leaseholders agree and without the need for consent from the freeholder.

The Law Commission recommends that the government works with lenders to ensure they will accept the automatic transfer of their mortgages from the leasehold title to the new commonhold unit, since it offers greater security than a lease that is running out and which can be determined by a landlord.

The proposals would also enable commonhold to be used for larger, mixed-use developments consisting of residential units and shops, restaurants, and leisure facilities.

These developments could be divided into “sections”, enabling developers to manage separately the different types of use. This could ensure that only unit-owners within each section are able to vote on matters relating to that section, and that only those who benefit from a particular service end up paying for it.

Here is a link to the full report and the summary.

Will this ever happen?

The Law Commission acknowledges in its report that it does not believe commonhold will take root on its own.

It will not be used unless adequate incentives are put in place to make it more attractive to developers than leasehold, or unless it is made compulsory – which is clearly the Law Commission’s preferred option.

That would be a dramatic shift in the law of property, arguably the biggest since 1925.

Making commonhold compulsory would require strong conviction from government and would take up a huge amount of parliamentary time, which is unlikely to be forthcoming any time soon I would think.

The track record of recent governments in implementing Law Commission proposals for land law reform isn’t promising either.

Back in 2011 the Law Commission made excellent proposals for modernising and simplifying land law that included reforming the law on covenants to create a new legal interest in land, called a “land obligation”, that could be either negative or positive and would be enforceable against successors in title without the current problems inherent in the law relating to covenants.

This would have solved, or at least simplified, many of the problems encountered on dealing with positive obligations on freehold estates.

On 18 May 2016 the government announced that it would bring forward proposals to respond to the Law Commission’s recommendations in a draft Law of Property Bill.

Since then…nothing.

So, I’m sceptical about what will happen next with these latest proposals.  If the government thinks there are votes in it; it has support from the tabloid press; and it can be parcelled up into an irritating three-word slogan, then it’s game on.

But I wouldn’t bet your house on it.

Thursday, 2 July 2020

Planning Changes: Will More Floors be Added to Blocks of Flats?


“Build Build Build” is the latest three-word mantra from the Johnson regime being drilled into the heads of a population emerging from lockdown.

New PDR

In support of this policy the government has announced new rules allowing blocks of flats to be extended upwards by two storeys to create new homes without the need for planning permission, to come into force on 1 August 2020.

This is being done by a change to the Permitted Development Rights (PDR) being introduced by the Town and Country Planning (Permitted Development and Miscellaneous Amendments) (England) (Coronavirus) Regulations 2020. However, the change has nothing to do with coronavirus and is not temporary.

Current PDR are contained in the Permitted Development Rights (England) Order 2015 and enable certain changes of use without the requirement to obtain full planning permission. For example, one of the established PDR allows the conversion of offices to residential.

The 2015 Order is being changed to allow an additional two floors of new flats to be constructed on existing purpose-built detached blocks of flats under a new Class A of Part 20.

The new PDR includes carrying out the necessary engineering operations to support the new floors; the right to replace or add roof-based plant and equipment; the construction of safe access; and the construction of storage, waste and other ancillary facilities.

Restrictions

However, the following restrictions apply:

·       The building must have no less than three above ground floors;

·       it must have been constructed after 1 July 1948 but before 5 March 2018;

·       there are restrictions on the height of each new floor, and on the relative and maximum heights of the building, so that the extended building must not exceed 30 metres in height; and

·       the rights are not available if the building is in a conservation area, National Park or site of special scientific interest, if the building is listed, or if it is within 3km of an aerodrome. There are some other hazard-related restrictions.

The reference to 1 July 1948 might appear arbitrary but it’s been chosen because it reflects the date when the Town and Country Planning Act 1947 – the first planning legislation - came into force granting planning title to all pre-existing buildings and uses. The other date – 5 March 2018 – reflects the date when it was announced that the government would consult on the right to build upwards.

Prior Approval

The PDR is not automatic.

Before exercising the PDR, a developer must apply to the local planning authority for prior approval.

The prior approval process is not meant to replicate the hurdles a developer would have had to overcome to obtain full planning permission. Instead, the planning authority has a more limited number of planning considerations to take into account. Nevertheless, these could still prove difficult to satisfy. They include the building’s external appearance; impact on the amenity of the building and neighbouring properties; overlooking; privacy; and loss of light.

If prior approval is not given, a developer has a right of appeal.

CIL

If a Community Infrastructure Levy charging scheme is in place, then CIL will apply to these conversions. However, a local authority cannot impose further charges under section 106 agreements.

Rights of Light

The new PDR will be welcomed by developers but carrying out conversions of this nature is never going to be straightforward. There are other legal issues that must be considered before floors can be added to buildings.

Any rights of light that may have been acquired by neighbouring buildings must be reviewed carefully, and in build-up areas a rights of light survey is advisable.

In a recent case (Beaumont Business Centres Ltd v Florala Properties Ltd [2020] EWHC 550 (Ch)) the high court granted an injunction ordering a developer to take down part of a completed development that was deemed to infringe the rights of light of a neighbouring building.

Restrictive Covenants

The title to the building should be examined to see whether there are any restrictive covenants that prohibit increasing the height of the building.

Existing Leases at the Building

This is another area where things can get very complicated and where third parties could potentially frustrate the development.

If the remainder of the building is let, the precise areas demised by any current leases of the upper floors must be examined before undertaking any development and before granting any development leases.

In a recent case (R. (on the application of HCP (Hendon) Ltd) v Chief Land Registrar [2020] EWHC 1278 (Admin)) the High Court ruled that existing leases of the flats on the upper floors included the roof and roof space of the building. The building owner had granted to a developer a development lease of airspace for the construction of an additional floor, which included the roof and roof space. As the roof and roof space were already demised to the upper flats, the development lease was deemed to be concurrent with those leases of the flats, meaning it was subject to those leases. As a result, the developer was unable to take possession of the roof and roof space and comply with its obligation in the development lease to construct an additional floor.

In this case, the developer had relied on the short description of the existing flats noted on the register – “as to the parts tinted blue on the title plan only the first floor maisonette is included in the title”. Had the developer ordered copies of the leases themselves, it would have discovered that the more detailed description of the demise given in the leases of the upper flats (which is what actually determines the extent of the demise, rather than the brief description given on the registered title) showed that the roof and roof space had already been demised under the existing leases.

Airspace Presumptions

Leases themselves are not always clear on what is included in the demise, or they may be silent as to the airspace. In many cases the leases will be “internal only” and will exclude the structure and roof of the building, in which case the building owner is free to carry out development in the absence of any other restrictions in the leases (there may well be some however and so the whole of the leases must be read carefully).

What are the legal presumptions where there is a lease of the whole building or leases of parts of the building that include the structure but are silent on the airspace?

If the lease is of the whole building, the general rule is that the demise includes the airspace above it, unless the lease expressly excludes it.

That is also normally the case if the lease is of the upper portion of the whole building including the roof (again unless the lease expressly excludes the airspace).

However, there are no clear presumptions relating to divisions of individual parts of a building, and if a building is divided up vertically, for example in a mansion block where the roof is over several flats next to each other and is not demised to one tenant, the individual demises are unlikely to be deemed to include the airspace in the absence of any express wording.

So, there’s a distinction between a top floor flat where the demise includes the whole of the roof against a demise that includes only part of the roof.

In Ralph Kline Limited v Metropolitan and County Holdings Limited [2018] EWCH 64 (Ch) the High Court held that on a proper construction of a lease of a whole building, the demised premises included airspace to the extent that is required for the ordinary use and enjoyment of the premises. The facts are too complex to recite here, but the case report provides a useful analysis of the case law to date.

Rights Reserved in Existing Leases

As a landlord, the building owner must always comply with its covenant for quiet enjoyment in any existing leases and adhere to the principle of non-derogation from grant.

A covenant for quiet enjoyment overlaps with a landlord's implied obligation not to derogate from its grant. The principle is based on the rule of common honesty: a person cannot give with one hand and take away with the other. In the context of leases, it is usually relied on to stop a landlord from doing something that would prevent the tenant from enjoying the property leased to it.

The building owner must also ensure it has adequate rights reserved under all the existing leases in the building to be able to carry out the works.

In Timothy Taylor Ltd v Mayfair House Corporation & Anr [2016] EWHC 1075 (Ch) the High Court ruled that the reservation of a landlord's right to build should be construed as entitling the landlord to carry out the works in question, provided that the landlord takes “all reasonable steps” to minimise disturbance to the tenant.

When seeking to carry out works, even when exercising an express right to do so under existing leases, to try and minimise disruption and the risk of any disputes a building owner should aim to:

·       liaise with tenants when the works are being planned, in order to discuss the nature and extent of the works and to develop an appropriate strategy for minimising the impact of those works on the tenants;

·       design and procure the works so as not to impact on the tenant’s use of the property negatively, where practicable;

·       where the works may cause more than minor disruption to tenants, consider offering a reduced rent for the duration of the works (or some other form of compensation);

·       ensure that the project manager/contractor/site team responsible for supervising the works comply with any agreement reached with tenants aimed at minimising disruption; and

·       provide tenants with regular updates about the progress of the works and give them an opportunity to discuss any practical problems arising from the works.

There may be plant and equipment located on the roof that benefits the existing tenants, such as air conditioning, satellite dishes and aerials. This will need to be relocated whilst the development is carried out and possibly re-sited on the new roof on completion.

Telecoms Equipment

If there is telecommunications equipment on the roof of the building let to telecoms companies, the building owner will need to negotiate with the telecoms companies for the temporary removal and relocation of the equipment and the eventual re-siting of the equipment on the new roof after the development has been completed. The telecoms companies will have rights under the Electronic Communications Code which must be considered.

What next?

In view of the hurdles to be overcome in the prior approval process and the many other factors to be considered, including those I’ve outlined above, I wonder what the uptake of this new PDR will be and how many homes will ultimately be generated by it.

The existing PDR allowing the conversion of offices to residential is also being amended.

There has been controversy over the way the existing PDR has been used and the quality of accommodation that has in some instances been created (including even in some cases windowless flats). The government has amended the PDR so that now the prior approval by the planning authority must also include consideration of the adequacy of natural light in all habitable rooms in the new homes.

It’s not clear how a planning officer will determine what may or may not amount to adequate natural light. Will expert (and costly) light assessments be required?

It is likely too that further PDR easing will be introduced to encourage the conversion of more offices and also retail space to residential.

In other planning news, as a temporary measure in response to Covid-19, the government announced on 22 June that all planning permissions which were due to expire between 23 March and 31 December 2020 would be extended until 1 April 2021.

Generally, the Prime Minister wants to unleash what he calls the most radical reform of the planning system since the Second World War. There wasn’t any planning law then, so this could be… interesting…