Permitted Development rights were brought into force on 13 May 2013 which permit the change of use of properties from offices to residential (subject to prior approval of flooding, transportation and environmental issues). The application of these rights has enabled the conversion of a number of disused and empty office buildings which might otherwise have been refused consent under the previous planning framework.
Where an office building is held under a long leasehold interest, consent will often be required from the landlord to either change use and /or carry out alterations.
Until recently, landlords were considered to be acting reasonably in withholding consent to any change of use and/or any alterations to convert premises from offices to residential. This was on the grounds that once the properties were converted to residential use, tenants might be able to exercise their collective enfranchisement rights (which could ultimately result in the landlord having to dispose to the tenants of its freehold interest).
The decision handed down in the recent case of Mount Eden v Bolsover has reversed the previously established case law. The High Court held that a refusal of consent by a landlord to the alterations which would be required to change the use of the property would be unreasonable if that refusal was related solely to the implications of changing the use of property.
The Court concluded that it was little more than a matter of speculation as to whether the collective enfranchisement rights would apply to a property once converted (given the different species of residential tenancy which might be created, not all of which would have the benefit of rights of enfranchisement) and that if the rights did apply, they might not be exercised.
The owners of freeholds of office buildings granting long leasehold interests will need to consider the implications of the Mount Eden case carefully and whether they stand to be prejudiced by the conversion of those properties to residential use. Careful drafting will be necessary to ensure that any unwanted conversion of that property to residential isn’t permitted by the terms of the lease.
By the same token, an obstacle which might have been perceived to exist by tenants of existing long leases, to the conversion of office buildings let on long leases to residential properties has now been removed.
If you wish to discuss any of the issues raised in this blog please contact James Snaith