Going for a conversion

The process of converting a residential property into a commercial one is complex and requires compliance with various legal, planning and regulatory frameworks. As a commercial landlord, understanding the legal pathway to securing the necessary planning permissions is crucial to avoid fines, legal disputes, or issues with future tenants. In England and Wales, properties are categorised under specific “use classes” as defined by the Town and Country Planning (Use Classes) Order 1987. Residential properties generally fall under use class C3 (Dwellinghouses), while commercial properties can fall under various classes such as Class E (Commercial, Business, and Service) or sui generis (a use class outside standard classifications). Changing from a C3 use class to a commercial class often requires formal planning permission from the local planning authority. Before beginning the conversion, landlords must check whether the change of use falls within permitted development rights. Some minor changes, such as converting a house into a small shop, may not require full planning permission. However, more significant conversions, such as turning a house into a restaurant, almost always require a formal application. The LPA will consider factors such as traffic impact, noise pollution and the effect on neighbouring properties before granting permission. Applying for planning permission If planning permission is required, landlords must submit an application to their LPA, typically through the planning portal. The application will include details of the proposed changes, architectural plans and supporting documentation, such as noise assessments or environmental impact studies, along with several other key elements: Standard application form: Detailing the proposed change and its scope. Location and site plans: Accurate drawings illustrating the property’s current state and proposed alterations. Ownership and agricultural holdings certificates: Confirming property ownership and whether the land includes any agricultural holdings. Design and access statement: Required if significant changes to the building’s appearance are planned or if the building is listed; it explains the design rationale and how access considerations are addressed. Fire statement: Necessary for buildings over 18m or seven storeys tall, outlining fire safety measures. Application fee: Varies based on the project’s scale and nature. Engaging in pre-application discussions with the LPA may streamline the approval process. Be aware that many councils now charge for this service but applicants often find this is money well spent as they will get an early indication of the thinking of the LPA. The local authority will assess the application based on local planning policies and the National Planning Policy Framework. It may also conduct public consultations, allowing neighbours and stakeholders to raise objections or support the application. The process usually takes eight to 13 weeks, depending on the project’s complexity. If planning permission is denied, landlords may appeal the decision through the Planning Inspectorate. However, this is a last resort as appeals can be time-consuming and costly, so addressing any concerns raised by the LPA before resubmitting an application is often the better course. Building regulations and compliance Securing planning permission is only the first step – landlords must also ensure any physical alterations comply with building regulations. These cover essential aspects such as fire safety, ventilation, structural integrity and accessibility. Commercial buildings must meet more stringent fire and safety standards than residential properties, often necessitating modifications such as improved fire exits, reinforced structures and disability access. Approved documents published by the government provide guidance on building regulations. Although approved documents are not legally binding, it is advisable to follow them and to explain any differences. Landlords may need to submit a building notice or seek full plans approval from the local authority’s building control department, depending on the complexity of the project. Inspections will be carried out at various stages of construction to confirm compliance. The timeframe for achieving full plans approval varies depending on the complexity of the modifications. Typically, a full plans application can take between five and eight weeks for approval. If significant structural changes are required, the process may take longer, particularly if additional safety assessments are necessary. Once approved, the work must be carried out in accordance with the approved plans, with inspections conducted at key stages of construction. For smaller projects, landlords may opt for a building notice, which allows work to commence without detailed plans being submitted upfront. However, this approach carries a higher risk, as any non-compliant work identified during inspections must be rectified. The process is typically quicker, with approval often granted within 48 hours, but it is not suitable for larger or complex projects where full oversight is necessary. Failure to comply with building regulations can result in severe consequences, including enforcement action by the local authority. This may involve an enforcement notice requiring remedial work or, in extreme cases, prosecution with fines that can reach up to £5,000 per offence. Additionally, daily penalties of up to £50 may be imposed for continued non-compliance. Beyond financial penalties, non-compliance may also render the property unsellable or uninsurable, leading to long-term financial and legal complications. Working with experienced professionals, such as architects and structural engineers, can help ensure all necessary modifications meet regulatory standards. Non-compliance can lead to enforcement action, fines and legal disputes, so obtaining expert advice is crucial. Once the property is legally reclassified as commercial, landlords must draft appropriate lease agreements. Commercial leases differ significantly from residential tenancy agreements, covering factors such as rent reviews, repairing obligations and permitted uses. Landlords should engage a solicitor experienced in commercial property law to draft legally compliant lease agreements that protect both parties. Tax implications and business rates Converting a property from residential to commercial use can have significant financial implications. If the property is mortgaged, it is crucial to inform your lender of the intended change of use. Residential mortgages differ from commercial ones, and failure to obtain the appropriate financing can lead to breaches of mortgage terms. You may need to refinance under a commercial mortgage, which often involves different interest rates and repayment structures. Changing a property from residential to commercial use also affects tax liabilities. Council tax no longer applies and business rates become payable instead. The Valuation Office Agency will reassess the property’s rateable value, which determines the amount payable. Landlords may also be eligible for business rates relief depending on the nature of the business occupying the property. Additionally, stamp duty land tax rules differ between residential and commercial properties, potentially affecting future transactions. Furthermore, landlords should consider the potential impact on property value, insurance premiums and long-term profitability. Engaging with financial advisers and commercial property experts can provide clarity and help in making informed decisions. Failure to follow legal procedures Failing to comply with legal requirements can lead to severe consequences. Operating a commercial enterprise from a residential property without permission may result in enforcement action from the LPA, including orders to cease operations and restore the property to its original state. Planning breaches can attract fines and even prosecution in extreme cases. Moreover, an improperly classified property can deter potential tenants, particularly reputable businesses requiring legal security in their leasing agreements. This can lead to long vacancies, loss of rental income and potential legal disputes with tenants over lease validity. Similarly, non-compliance with building regulations can result in financial penalties, liability for damages in case of accidents and difficulties in obtaining insurance. It can also complicate future property sales or leases, as legal disputes or the need for retrospective approvals may arise. Without a legal change of use, landlords may struggle to secure financing or refinancing from banks and specialist lenders as they will require proof of full regulatory compliance before approving loans. Converting a residential property into a commercial one is a legally intricate process that demands careful planning, proper permissions and strict regulatory compliance. By following the correct procedures, landlords can ensure a smooth transition, avoid legal pitfalls and maximise the value of their investment. Consulting with planning experts, legal professionals and tax advisers before initiating the conversion can significantly streamline the process and safeguard against potential pitfalls. For landlords considering this transition, taking a proactive and informed approach is essential to achieving long-term commercial success. Karen Mason is a co-founder of Newmanor Law Image © Adobe Stock