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Sales and leasebacks and the changes to the planning use classes order

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Posted by David Slade on 16 October 2020

David Slade - Head of Commercial Property
David Slade Partner


Good afternoon everybody my name is David Slade and I’m a commercial real estate partner here at Wright Hassall solicitors in Leamington spa and you are all very welcome to our real estate event which we are presenting jointly with HOLT Commercial; one of the leading commercial surveyors in the Coventry and Warwickshire region with, like us, as commercial real estate solicitors, have very much a national reach beyond the region.

We're covering just two topics very different to each other but both in their own way creatures of this pandemic which is truly dominating our lives. Those topics are sales and lease backs and the recent changes introduced to the planning use classes order and with both of those topics the Wright Hassall speakers will cover the legal angles and HOLT Commercial will review the practicalities, the ups and downs from a commercial surveyor's perspective.

Sale and leasebacks

We'll cover sale and leasebacks first, and your speakers will be from Wright Hassall my colleague Bhavika Mistry, an associate in our real estate department and from HOLT Commercial David Allen a director with a specialism in investment and development funding. When we cover the planning changes our speakers will be John Gregory Wright Hassall’s head of planning and then Peter Holt, HOLT Commercial’s managing director. Peter has expertise in industrial and warehouse property development and agency.

I hope you will all find some useful snippets in what we have to say so without further ado I’ll pass you on to our speakers beginning with my colleague Bhavika on sale and leasebacks.

Thank you for that introduction David and thanks everyone for joining. So, as David mentioned I’ll be focusing on some of the legal considerations of the sale and leaseback transaction and then I’ll pass on to David Allen. So, in terms of what I’ll be covering, I’ve just set out a very brief overview of the points on this slide.

For those of you who haven't come across a sale and leaseback transaction before, effectively it does what it says on the tin. The owner of a property sells the property to another party subject to taking a lease of a property immediately upon completion. Now this certainly is not a new concept and it's been used by businesses for decades and so the result of the sale and leaseback essentially means the seller should receive that cash injection whilst being able to carry on using and occupying the property; whereas from the buyer's perspective it results in them gaining an investment with the certainty of income over a fixed period of time.


So, on to the advantages from the sellers or tenant’s perspective. It's a cheaper and quicker way of raising finance compared to traditional lending mainly because a mainstream lender would still need things like valuations and that obviously results in surveyors’ fees together with the banks arrangement fees and additional legal costs.

Another cost-saving benefit is that the cash injection could be used to pay off any existing debt which of course saves paying interest repayments going forward.

In addition, the seller also retains control of the property whilst being able to pump the proceeds back into the business. Specifically, from the tenant’s perspective they could also benefit from sale & leaseback stamp duty land tax or SDLT relief which I will be discussing in more detail shortly.

From the buyers or landlord’s perspective they'll have the certainty of rental in income for a fixed period of time so even if the buyer has to obtain a mortgage to pay for the property. This income would at least offset any mortgage payments for a certain period.

Another advantage is that the buyer has options regarding the purchasing vehicle and again that's one I will be discussing in more detail shortly over the next few slides

Finally, from the landlord's point of view. They could also request additional security and in the form of say a guarantor rent deposit and try and strengthen the deal going forwards.


So, moving on to the disadvantages and starting with the seller and tenant. Although the seller would continue to occupy and trade from the property, the transition from owner to tenant can be quite difficult particularly if the sellers owned the property for decades and they're used to carrying out alterations other than they please and that would certainly need to change and as a seller would have to obtain the landlord's consent going forward. So, it's very much a mindset change as well as a change in roles.

Another pitfall from the tenant's perspective is that the cash injection may not last as long as they initially thought so that inability to pay rent in the long term may lead to the landlord taking action such as forfeiting the lease and albeit that that's usually a last resort scenario. The last for the seller to consider is that the sale of the property could lead to a reduction in the value of the business as a whole so any future business sale may therefore be at reduced value for the buyer or landlord and I’ve already discussed the first point in relation to the tenant being unable to pay the rent.

So, moving on. If the tenant does push to limit its repairing obligation by a scheduler condition, then ultimately the landlord may still need to incur costs on dilapidation's at the end of the term and so I will be discussing this point in more detail on the next slide. That leads on nicely to my next point which depends on the type of property in question. If the tenant only requires a lease of part of the property as opposed to whole, then this would be an internal repairing only lease and that usually still provides for the landlord to repair and maintain the structure and exterior of the property resulting in additional costs. Finally, unlike the tenant, the buyer cannot benefit from sale & leaseback SDLT relief and I will touch upon group relief in the next few slides which may be an option.

Moving on to the lease terms. Now I don't intend to go through all the main terms of the lease as David Allen will be discussing this in his presentation too but I just wanted to select a few points on my slide. The first point is the repair obligation which is an important term. I'm sure many of you have already come across leases which are fully repairing and ensuring leases that essentially puts the onus on the tenant to repair the whole of the property. Now for some of my tenant clients that I’ve acted for in the past, they don't always appreciate the full extent of this obligation and which is completely understandable because in plain English to keep a property in good repair and condition would ordinarily mean any damage caused by the tenant throughout the term should be repaired. Now unfortunately that's only part of the obligation and as it also implies that the tenant must keep the property in good repaying condition at the start of the lease and this is still the case when the wording in the lease doesn't expressly include to put and keep and that's been established in case law since the 19th century.

So from a tenant's perspective they should always try and negotiate a scheduled condition if the property is in a poor state. The only other consideration on repair that I wanted to mention is for newly constructed properties and so a tenant should try and carve out any obligation to repair damage caused by an inherent defect and which relates to the design or construction of the field and this shouldn't really be contentious from the landlord's perspective assuming they've got the benefit of any collateral warranties. So just jumping forward to point four, the rent free and for those sellers that are already struggling financially which is probably why they're doing this leaseback in the first place. Any rent-free period that they can agree will definitely help their cash flow for a fixed period of time.

Moving on to point five. If the lease is of a longer term a tenant should really try and ensure that it's got the ability to assign or under let or share occupation with any group companies to allow for flexibility. Now under section 19 of the landlord and tenant at 1927 landlords should be aware of their statutory obligation of not to unreasonably withhold consent to assign the lease. Now most commercial releases these days include this as an express obligation anyway but the 1927 does still protect landlords as well and as a section 19a does allow a landlord to impose reasonable conditions on a tenant in order for them to assign but again ideally it's best for a landlord to try and include these conditions and circumstances expressly and in the lease.

So, moving on to the next slide and I would just like to discuss the break option as well so a break for either party may be required again for flexibility and especially if the leases of a longer term. Now if the landlord requires a break and then it should ensure that the lease is outside of the security of ten-year provisions of the landlord and tenant act 1954 and this is just to prevent the potential complications of the landlord having to go through the statutory procedure of terminating a protected tenancy.  

Landlord Tenant Act

The final point I wanted to discuss on this section is the landlord tenant act 1954. If the security of tenure of provisions are excluded then as a practical point the buyer needs to ensure that the morning notice and declaration is served prior to exchange of contracts which is when the seller will become contractually bound to take the lease so it's not good enough just to do this prior to completion it must be done before exchange and in order for the lease to be validly excluded.

So, moving on to the options of structuring a sale & leaseback. Now many of you will have heard of a prop co-op co structure and which is essentially when a company separates the property from the operational functions and so in practice it's the opco who would take the lease of the tenant and then use the same proceeds to pump back into their business and then propco as a landlord will receive that steady rental income from opco which also gives the propco the option of using the property to raise finance. Now another way of structuring the sale & leaseback is to transfer the property into a pension scheme. So, this is usually likely to be a self-invested personal pension which is called a SIPP or a small self-administered scheme which is a SSAS.

Now this could be a cost-effective option as a pension scheme would effectively act as a tax wrapper because the rental income that comes in will be received and free of tax and subject to certain restrictions a SAAS can also raise finance against the property for up to 50 percent of the value of the assets of the scheme.

Now the only thing with this option is the parties still need to be aware of HMRC’s rules which require connected parties to still deal with any sale or lease on an answer basis. The final option I just wanted to flag is in relation to the leaseback element. Instead of just having a vaccine lease some buyers do prefer to grant long leases that are ground rent which is put in place just above the occupational and back rent lease and this can be quite attractive for landlords if the ground rent can be increased regularly and since essentially they'll have to benefit both the ground rent and the back rent income.

Moving on to the SDLT relief. The tenant may be able to apply for sale & leaseback relief. Now I’ve set up the conditions which need to be met on my slide but one important thing for the tenant that i wanted to flag is it can only be eligible for the relief and if the entity of the seller and the  entity of the tenant are the same so any connected party or any connected company wouldn't be good enough to apply. Now as a relief is a hundred percent this could actually be a large saving for the tenant especially when there's and hefty rent involved. Now if sale and lease backed relief can't be claimed and then the buyer may be able to claim group relief depending on the structure and ownership of the seller and buyer. This is still subject to certain restrictions, but it may benefit a prop co-op co structure.

So, moving on to the considerations. If the property has been optional tax by the seller or if it's a newly constructed property in the last three years, then that will be payable on the purchase price. So, the buyers should really try to find out this information from the outset as it would increase any SDLT payable and it would also affect the tenants cash flow because that would still be payable on the rent. Now this may not be concerned the tenants registered but that of course will be dependent on the nature of the business question.

Practical points

Finally, I just wanted to flag some practical points for both parties. Now firstly with the building's insurance and it's only when the lease is completed but the insurance obligations on the landlord and the tenant come into place so in practice it probably best for both parties to ensure their separate interest in between exchange and completion and assuming that there's going to be a gap in between the two.

Moving on to allowances and practically rather than the full amount of the sale proceeds being transferred to the seller and who in turn will need to arrange for an immediate payment of the rent instalment it's easier for both parties to agree to deduct the rent on completion which is just less of an admin for the seller. And then finally from the tenant's perspective they should bear in mind that if the term of the lease is over seven years and it has to be registered at the land registry and so they should budget for that additional disbursement cost and if the lease is to be granted is at least part of the property as opposed to the whole then the landlord should get his surveyor to prepare a land registry compliant plan. So that's everything from me and I’ll now pass on to David Allen.

The property aspect

Thank you for that resume. I hope you're not all webinared out. Looking at the property aspect there will be some overlap on these slides so forgive me for that but I’m not going to go through every point I'm going to look at three fundamental aspects really. Financial property and the lease. So, why do you say the leaseback? Well it's 1  capital raise so there is no buffer so you've got to get it right if you're buying you haven't got that buffer zone that a lender might have classically it assumes that investment value is higher than the vacant possession value so there is value in the lease and that's why we've been concentrating on those clauses. From a buyer's point of view if you're confident of your tenant you'll want as long the leaseback as possible because it takes on more of a bond like form which is why there is demand. Well there's nothing on deposit and nothing on bonds which is the cleaned up version of saying it for those who've heard my views on them on returns on them outside of property at the moment fundamentally though what is the financial state of the future lessee and what will their future prospects be like when looking at their balance sheet and their cash flow forecast having taken on that lease does the property matter to them and the lot size and the occupier grade will determine the buyer profile.

We've already said that the owner loses the future growth in value but if they're there to survive well that might be a very compensating factor. Don't underestimate the change in mindset from owner to lessee and patiently everything is custom made for the property and the same release back and the tenant.

What are the drivers of value if you're looking at the financial side financial strength? Is vital the 581 rating is not necessarily investment grade and that even local authorities and universities are graded surprisingly when you bring up the annuity funds to find out who's graded at what so is there a sustainable business plan. I think a lot of investors look beyond just the historic figures and you've got to do that with the spectra of cva so who owns it. I have a hang up about private equity not being particularly nice to landlords but I won't label that now that's probably for another lecture.

Measures on rent collection. Which is hardly really helped matters of late in terms of landlord and tenant relationships so if you turn that coin on the other side tenant considerations is the lessee in difficulty or is it really a desire that's strategic so money in the business and not in the property is it structural. Are they running out of money is their business not doing well is it cyclical which you might say Rolls Royce would be in at the moment or top people like tops tiles who have done sending lease backs of late same as Next Ted Baker you might contrast that with Debenhams and House of Fraser deals where a lot of money was extracted very high rents were payable for a very long time and the business couldn't support it .Toys R US is probably the propco opco that really did go wrong and Travelodge will have done a lot of favours to a lot of people haven't they.

Please use a surveyor.

I would say that. How specialised is the building? Is it's very specialised or old? What is that relatability like at the end of the lease and that end of the lease might be if the tenant fails? So again, these are interrelated if the tenant's very strong frankly you could let virtually anything letting of land is wonderful because there's nothing on it. So which sectors are favoured at the moment well awfully cliché but beds and sheds but that does include care homes surprisingly there is demand out there for that but not retail but that does exclude supermarkets because there have been recent Waitrose and Sainsbury’s deals? Leisure, well you might have said cinemas until very recently with no James Bond. Hotels they may come back again. Occupy thoughts how long is your lease going to be for and does that property actually suit you because if it's not easily relatable and it and you can't see a long-term business plan for it why take a long list on it so one might apply the same criteria to a department store at the moment.

What state of repair is the property in and what works might have to be carried out? Once I did some lease back on a 25-year-old property. For 25 years I understand the lease has been extended again so when some person has to sit there and agree the terminal schedule that property is going to be probably in excess of 50 years old

Surveyors perspective

From a surveyor's point of view in the lease what are we looking at from the landlord's point of view. Minimum 15 years unless it's redevelopment ideally 25 plus that could exclude grand rent type deals which could be for longer leases at lower rents. Should the rent be market value or a percentage? Should the rent review be index linked the latter improves that improves the bond like qualities but at the same time might completely over rent the property. Repairship I think schedules of condition reduce investment value but Bhavika’s already touched on the liabilities under an fri lease breaks not keen on them if you're a landlord unless it's for redevelopment if it's redevelopment we wanted outside the l t act buyback clauses. We've not gone through that in great detail. What basis is that buyback clause on in I dealt with one where the value of the same leaseback was in an excellent covenant and unbelievably the buy-back clause was a vacant possession value for quite a specialist building.

So well done to whoever advised the purchaser on that on my old practice. We were advising the tenant I seem to remember the other place buyback clauses really come into play of course are on strip income deals and you can do a whole seminar on that but bluntly and I excuse me for looking down at my notes but if you take the present value of four percent after 25 years that reduces the value down to 0.3 percent if you go out to 35 years it's under 0.2 so you can see that they are often used in ground rent type leases as well.

What are the balance sheet implications?

The only place I’ve seen it reported when I did a bit of research for this and I’ll plug a co-star in an effort that they might pay us some money back for plugging them rather than us continually paying them that is. Tops Tiles did report the implication of ifrs 16 on their balance sheet, but it was amazingly counterbalanced by their benefit of the lease for them to use. So, what are the priorities is that maximizing proceeds over the rental commitments the tenant will want flexibility but the landlord wants to know that they're not leasing to anybody who's going to be a worse covenant financial covenant than originally so it's a trade-off of flexibility against certainty every time

So yeah strip income deals are the ultimate cash flow investment and they're very similar to the grand rent deals that people like alpha capital have been doing and so on but that's a different market I’m dealing with the simple form today. So some final thoughts I would say this wouldn't I but do prepare thoroughly the number of half constructed leases unthought through answers on accounts capital allowances finding vat elections or whatever there may be the inability to think beyond getting the cash in and not looking at the cgt liability speaking to the lender that if the property is charged i think fundamentally be honest and say where is the cash going is it debt reduction is it capital investment or is it part? Perhaps of a retirement plan and i think we've already labelled this but do sort out the vat position before offering. So that concludes my thoughts I’m sure there'll be some questions and back to you I think probably John.

Legal changes to the Use Classes Order

Thank you, David and good afternoon, everybody. So a similar topic, similar format for the planning Use Classes Order as for the previous topic. I'm going to take you through the legal changes to the Use Classes Order and I’ll hand over to Peter who's going to talk about some of the more practical issues that may arise as a result. So first then in order to understand the changes it's helpful to remind we of what the use classes order actually is and what it does put simply. The Use Classes Order groups together common uses of land for planning purposes so the uses within each class are considered broadly like each other so for example use class b2 group together general industrial uses use class b8 groups together storage and distribution and so on.

So, what's the effects of grouping uses of land together in this way? Well going back to basic principles section 55 1 of the town and country planning act defines what development is for planning purposes and section 55 2 specifically excludes changes of use within the same use class so change the views within the same Use Classes do not constitute development and because planning permission is only required for development changes of use within the same use class never require any form of planning permission. So, for example change of use from a clothing shop to a gift shop doesn't require planning permission because both uses fall within the same class a1 in that case.

So importantly it can be seen that the right to change uses within the same class doesn't result from a permitted development right. Permitted development rights relate to development which is granted permission by the general permitted development order but as we've seen the effects of 55 2 is that the changes of use within the same class are excluded from the definition of development altogether. But simply if it's not development it doesn't need permission whether that's express permission from the council or whether it's deemed permission granted by the general permitted development order. Now of course changes from one use class to another use class so for example c2 to c3 will usually fall within the definition of development and require permission and some of these forms of development do benefit from permitted development rights. So for example there are permitted development rights allowing agricultural buildings to change the residential hot food takeaways to change the shops and so on.

So, what has changed?

Well the most significant change and the one that certainly generated the most controversy is the creation of new use class e. Class e relates to commercial business and service. It includes retail restaurants offices financial and professional services indoor sports medical and nursery uses along with any other services which is appropriate to provide in a commercial business or service locality. So, it can be seen that class c captures a wide range of uses and effectively it subsumes the old use classes a1 apart from those shops falling within the new community use which I’ll come on to.

a2 a3 b1 and elements of the old d1 and b2 classes such as nurseries health centres and gyms. Now there's clearly some scope here for argument about what constitutes a service which is appropriate to provide in a commercial locality for example travel agencies hairdressing. Higher shops and few more businesses were all previously specifically listed as being a1 even though they don't necessarily involve the retail sale of goods now these services aren't specifically listed as being class e uses  but i think it's arguable that all of them can be said to be services which is appropriate to provide in a commercial business or service locality and if they are then we need to  think about uses such as nail bars and tattoo parlours that up until till now, have always been considered sui generis uses. Well it seems to me at least arguable now that these uses provide services that are appropriate for a commercial business or service locality and if they do then we're really looking at a hugely broad range of uses that are now wholly outside the scope of planning control. Although I’m fairly sure the point will be debated at future appeals.

So as well as class e we see the creation of new use classes f1 and f2 f1 is learning and non-residential institutions and includes non-residential educational uses museums art galleries libraries public halls religious institutions and courts and f2 is a new local community use and includes uses a shop of no more than 280 square meters mostly selling essential goods it must include food and the shop must be at least one kilometre away from another similar shop and  you've also got their uses as community halls areas for outdoor sports swimming pools skating rinks. So the explicit aim of new use class f2 is to protect shops and other uses which are relied on by communities by ensuring that these aren't subject to the free-fall which is now class e now there's no further guidance yet on what constitutes essential goods or what the threshold is for mostly so again there is almost certainly going to be some future disagreement and debate about that

So inevitably we also see the removal of some existing use classes a and d are entirely deleted and as we've seen some of those uses are subsumed into the new use class e importantly however some of the other class a uses now become sui generis meaning that they fall outside all of the use classes. These are pubs hot food takeaways live music venues cinemas concert halls and bingo halls. Now as well as not benefiting from the class e flexibility the other effect of these uses becoming sui generis is that they will no longer benefit from the permitted development rights that they had so for example the previous right to change from a hot food takeaway a5 to an a1 or b1 office use won't be available. Now there are transitional provisions in place to deal with this and I’ll return to these a bit later on now you will have noted that I haven't mentioned use class b8 storage and distribution or any of the c classes c1 to c4 and this is because they are unchanged B2 general industrial is also substantially unaffected although it now contains some additional wording to exclude uses that will now fall within class e. Now also unchanged of course is that planning consent for operational works that might be required to facilitate these changes of use is still required the scope for this to change in the future certainly seems little reason why new pd rights can be introduced on a limited basis to deal with ancillary physical works certainly if the government is intent on increasing the uptake of the new flexibility then this would appear to be a logical step.

So conditions and planning obligations now it's important to note that the use classes order does not and will not override restrictions imposed by condition or section 106 planning obligation so for example a planning condition prohibiting the use of an existing office for retail would still be breached if the office changed to a shop even though both uses would now come under class e but the wording of these kinds of conditions varies enormously and some for example will refer specifically to the Use Classes Order as it was in a particular point in time others will refer to it as the uco as amended bring it up to date. Some conditions won't refer to the use order at all, but they'll simply describe that they used to be prohibited so the wording of each condition will have to be considered carefully to consider what the effect is. It is worth noting that the introduction of class e will be a material consideration when applying to have these kinds of conditions discharged or varied and so whilst the changes won't override existing conditions the prospects of having these varied or removed will be much improved in most cases.

Planning policy

So, a word on planning policy. There are clearly going to be implications for local and national policy for example policies restricting out of town retail and the extent of non-retail development on high streets. I recall just locally in Warwick district there used to be a policy restricting the amount of continuous non-a1 shop frontage that would be permitted in town centres and i think there's still a policy restricting out-of-town retail development. Well it's difficult to see how that kind of control could be exercised effectively. Now given what can be done within the scope of class e and indeed the updated national planning policy guidance now indicates that some such policies will have to be updated. Now whether and to what extent councils will use conditions to restrict changes within class e remains to be seen and it's actually unclear whether the government anticipates that councils will use condition to regulate changes in class e where appropriate or whether it's supposed to be left entirely to the market and we'll have to see how that develops.

On a national level we've got paragraph seven relating to ensuring the vitality of town centre. Paragraph seven provides for the sequential tests to be applied to out-of-town retail uses and it says main town centre uses should be located in town centres then in edge of centre locations and only if suitable sites are not available or expected to become available within a reasonable period should out of centre sites be considered however you'll have noted that class e includes some town centre uses and some that are not so for example you could now apply for permission for a new nursery or medical centre out of town and subsequently change it to a shop without any need for planning consent. And interestingly the trickle of appeal decisions that we've had where classes has been referenced to date do indicate that inspectors are treating the introduction of class c as a material consideration of some weight. One recent decision in particular involved a change of use from a shop to an adult gaming centre which is of course outside class e inspector granted consent and cited the changes to the use classes order as being material simply because it indicated the government's direction of travel in terms of more flexibility for town centre uses now I’m not entirely convinced by this approach  as a gaming centre has clearly been kept outside of class e for a reason and i think the government really has only decided on internal flexibility within class e rather than outside it but it does show the broader significance that these changes could have .

So, when and where do the changes take effect? Well the amendments apply anywhere in England not wales and as we've seen not just on high streets or in town centres, but they apply everywhere, and the changes are effective from 1 September 2020 subject to the transitional provisions which I’ll come on to now. So, a word on the transitional provisions. Well in short the effect of these and what you need to know about these quite complex provisions is that for the purposes of the general permitted development order the use classes are read as they were previously so as they stood on the 31st of august 2020 before the amendment order took effect and that will last until the 31st of

July 2020. So, the effect of this of course is that the permitted development rights that I mentioned earlier for example those relating to hot food takeaways will remain exercisable as they were until the end of July 2021. After that those pd rights will no longer apply but we expect, or we hope at least that the gpdo will be amended at that point and that new permitted development rights will be introduced that are appropriate for the amended use classes order. However if you do have clients with in particular hot food takeaways who are considering changes of use then I think I’d advise them to consider getting on with that before the 31st of July next year rather than delaying finally applications for prior approval in relation to permitted development rights and article 4 directions withdraw permitted development rights in certain areas are to be read as if the use classes order haven't been amended. If they were made prior to the first of September. So that's all I’ve got to say on the legal changes for now and I’ll hand over to Peter who will speak a little more about the practical implications.

Good afternoon everybody good to be with you. This is a general statement of use classes and as John has stated the middle area their general industrial storage and distribution c1 c2 c34 have remained unchanged but a good most of the others and I’m not going to talk about the f1 or f2 are within class e or have returned to sue generis which will create some interesting thoughts.

Property considerations

I'm going to briefly talk through covenants. I'm talking more related to restrictive covenants than comment on how this might affect valuation then briefly talk about development rights which john's mentioned just then the question of rating in the future and the valuation officer and how they're going to treat these use classes and then some minor conclusions to finish.

Freehold title land registry will have terms and restrictions. Some freeholds will have restrictions in use and this needs to be checked to make sure that something that somebody may have assigned a or sold a property and put some restriction on it because they've got another use nearby so it won't necessarily allow you to go to any of the specific uses in long leasehold these of course quite often have planning uses within them or restrictions of use and the freeholder would need to be approached if you wanted to change from maybe a1 to a3 when it was specifically going to be used for shock purposes that may cost you if the value is going up. Obviously there are a lot of public sectors Coventry in particular hold a lot of long lease holds and they can be quite difficult when it comes to change of use from what's been allowed and tend to look for some compensation for allowing it will the government put a bit of a lean on the local authorities to say well we want flexibility in these areas if you've got a long leasehold shouldn't you be more flexible in what you allow to allow the intentions of the use classes order to take effect in leases as you those who've held leases will realise that a lot of them do have restrictions on uses they don't want general industrial buildings to come into the city centre and while the planners wouldn't allow it but in general terms that needs to be looked at carefully before starting to slide from some of the uses within the e-class. Specifically, there of course we've got shopping centres and those quite often have fairly insistent use classes within their leases. They want to make sure that they don't end up with too many of the same type of shop or restaurant within the shopping centre so again those can be more specific and when taking on leases of that nature you need to be made sure that you're aware of those restrictions and if you do want to change them then you'll have to go to the landlord to see what you may be able to do. And of course, John's mentioned planning restrictions.

You’ll quite often end up with a small light industrial unit on an industrial state which will be specifically safe it's got to be used for industrial purposes in which case to transfer may be restricted by the planning system but again one needs to look at planning consent that the property has got. And whether there are any specific restrictions within that to prevent you transferring within the e-class.

How would it affect rental values?

Well obviously,, it's too early to tell but those that have specifically got restrictions within retail and you cannot transfer it without talking to landlord will that reduce value at all but it's having no effect we'll have to wait and see if there's a flexible e-class. In place within a lease that may of course be helpful so that you're actually able to move it around within the use classes and assign your lease without actually having to go back to planning or go back to the landlord if you lease the property and can move forward fairly quickly will that affect a rental value we've got to wait and see.

And of course, subletting or assignments. If you have a lease and you want to dispose of it the more flexible use classes you've got within that lease the easier it may well be to assign or sublet if you do have to go for a planning consent of course that's 6 eight ten thirteen weeks before a consent comes through and of course landlords won't always wait if the property is empty for somebody to go and get a planning consent.  It'll be interesting exercises when we start seeing these use classes within the leases.

One interesting one at the moment is betting shops they've been able to slide from a2 to a1 and betting shops are now going sui generis and to date we've been given no permitted development rights so an existing betting shop is now sui generis so if it wants to slide back to a1 or a2 or a3 a planning consent's going to be required which seems a little bit perverse when they're wanting flexibility so on the one hand they don't want hundreds of betting shops in the street and yes they've insisted on sui generis use but perhaps permitted development going back the other way should be allowed. So, it remains to see whether that that's allowed. Obviously if the shop does go back to an e-class use people probably have to go back to get planning to get to go back to a betting shop and of course very similar for take-aways which John's already covered. Interesting I’ve just sort of thought about this whether it's going to be real or otherwise, but we've got a revaluation coming up in the next year or three this will depend of course on when the government extends the date for the next rating revaluation. I don't know but you know under the class e it's a an industrial unit that's been very much used for light industrial things unless there's covenants in the planning and or the pre-holder arguably they can be used to retail is the db going to look at that and decide to increase the rate of value because it's used for retail or not just a thought but one that would be interesting and similarly going into the high street if we end up with one of the lower valued e-classes will there be an opportunity to appeal the relatable value at some stage? Not easy but maybe an opportunity particularly if it's coming down from a use that might be outside the small and medium business rate relief bands.

And finally, just some basic conclusions, we will need some revised permitted development rights to take away some of these anomalies and if not in trying to help if these proposals created difficulties accidentally it may well be and have we got more questions than answers possibly. We'll just have to wait and see thank you very much


About the author

David heads our commercial property team. He specialises in investment property sales and purchases.

David Slade

David heads our commercial property team. He specialises in investment property sales and purchases.

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