The 2020 Use Classes Order may offer flexibility, but it could cause issues for Landlords and Tenants, unless parties to a lease consider the impact of the changes brought about by that additional flexibility.
The Use Classes Order 1987 organised common uses of property into classes A, B, C and D, with sub classes within them. It allowed property to be used within a class and for uses to be changed without planning permission only between the sub classes within each class by permitted development rights.
The 2020 Use Classes Order rearranges some of the 1987 Classes into a new use class E including uses from old use classes A, B1, D1 and D2. So, without obtaining planning permission and the additional scrutiny that entails, as an example, a property originating as a restaurant could be used for light industry.
Gardner Leader are now seeing Heads of Terms for the letting of properties which set out the Permitted User for a unit as being within Use Class E. Tenants may think: “Great, if my business plan changes and I need to repurpose my unit, I can do so without the time and the expense of red tape!”. These could include obtaining Landlord’s consent to make a planning application, obtaining planning permission and a change of use. The same might apply on a Tenant’s vision of its exit route. Very wide Permitted Use clauses might allow a wider pool of potential assignees for a property and a quicker and cheaper exit.
However, if this is a long lease with an open market review, all that potential benefit will serve to increase the rent on review. A normal rent review provision will include a valuation assumption that a property may be used for any use permitted by the lease. The new Use Class E brings in the possibility of many more potential uses. In a 25 year lease with rent reviews every five years there are multiple opportunities for the Landlord to make a tenant pay for uses to which that property might never be put. In the light of that, the potential costs of getting Landlord’s consent for a change of use might not seem so expensive, after all!
For example, an estate agency unit, on a pedestrian high street, would probably never be considered by potential tenants wanting it for industrial use, because that usually requires constant and easy vehicular access, and other attributes not usually provided by a pedestrianised high street. An estate agent tenant might therefore resist its user clause being drawn so widely.
A Landlord will have other considerations. The uses to which properties are put, will affect their ultimate freehold value. A town centre unit at which an industrial process is carried on, may be less valuable than a more traditional town centre use, such as a shop or a café. Landlords should also be careful not to allow a wide permitted user clause in the lease to dictate the terms governing any alterations to the property, given the landlord will be less likely to be able to rely on planning provisions to resist a change of use.
As always, the parties to a lease should balance uses, which the landlord will allow, to provide the tenant with reasonable business flexibility and ability to assign; with the uses which tenant might require, and for which it is willing to pay. They should take care to avoid simply falling back on what might seem to be an easy option by referring to “Permitted User within Use Class E” generally.
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