Category: build to rent

Short Term Thinking

DLUHC published a consultation paper on 13 April 2023 setting out its proposal to create a new use class,  “C5 Short Term Let“,  to cover short term lets, and on related proposals to introduce new permitted development rights. So there will be a distinction between use classes C3  and C5. The Government will at the same time introduce permitted development rights into the General Permitted Development Order to allow changes from C3 to C5 and vice versa without the need for planning permission, unless the relevant local planning authority disapplies one or both of the permitted development rights by way of an article 4 direction.

It is vital that all those engaged in relevant businesses understand what is proposed, for instance serviced apartment operators; Airbnb type businesses and individual hosts, and build to rent businesses where there is a short-term letting element. There are opportunities, but also risks.

The tl:dr appears to be that in principle any flat or house in England (outside London) would be able to be used for Airbnb style short-term accommodation up to 365 days a year without the need for planning permission unless the local planning authority makes, with the necessary justification, an article 4 direction.

But it is all a bit confusing! At least, a number of us at Town Legal have been scratching our heads. Thanks incidentally to my colleague Aline Hyde for much work on this today – and for some of the text which follows.

 I think some of the confusion is down to the way that the proposal is trying to be all things to all people. The press statement is headed:

“New holiday let rules to protect local people and support tourism

New proposals will introduce a requirement for planning permissions for short term lets in tourist hot spots”

It explains:

“The government has listened to calls from local people in tourist hotspots that they are priced out of homes to rent or to buy and need housing that is more affordable so they can continue to work and live in the place they call home. The proposed planning changes would support sustainable communities, supporting local people and businesses and local services.

The proposed planning changes would see a planning use class created for short term lets not used as a sole or main home, alongside new permitted development rights, which will mean planning permission is not needed in areas where local authorities choose not to use these planning controls.

Both of these measures are focussed on short term lets, and therefore the planning changes and the register will not impact on hotels, hostels or B&Bs.”

On the face of it then, the Government is both seeking to regulate use of residential properties as short-term, Airbnb type accommodation but also to liberalise the use of residential properties for that purpose. Hmm.

First word of warning: this is not just about “tourist hot spots”. Subject to the ability for local authorities to make article 4 directions (more below), the proposals cover the whole of England.

Second word of warning: can we first be clear as to what exactly is a “short term let”? The consultation paper states:

“The term “short term let” can encompass a range of activity associated with a dwelling. Some short term lets may be let out for a limited period while the owner themselves go on holiday. Others may be properties that provide for a series of lets for holidays etc or very short term overnight sleeping accommodation including renting an individual bedroom while the owners are in situ.“

So DLUHC envisages the term as covering situations:

  • where a property is let for a limited period whilst the owner is away
  • where the owner remains in situ and rents out an individual bedroom on a short-term basis (NB not longer term lodgers are excluded) or
  • where a property provides for a series of lets to holidaymakers.

However, its proposed wording for the new “short term let” C5 is as follows:

“Use of a dwellinghouse that is not a sole or main residence for temporary sleeping accommodation for the purpose of holiday, leisure, recreation, business or other travel.”

Nothing about short-term lets beyond the title itself. Nothing about the letting out of individual bedrooms on a short-term basis whilst the owner remains in residence , which appears to be unrestricted by the proposals. And why list those purposes except perhaps so that the list excludes reference to asylum…?

The anachronistic word “dwellinghouse” beloved of planning lawyers can confuse as well. It just means “dwelling” and so includes flats as well as houses.

How will it be determined whether a property falls within use class C5? The consultation document explains that at the time of commencement of the proposed secondary legislation, properties used for this purpose will automatically fall within use class C5 and that there will therefore be no need to apply for planning permission, though of course an application for a lawful development certificate may be advisable if there is any uncertainty. Thereafter, where there is no article 4 direction disapplying the permitted development right to switch between C3 and C5, the Government intends to require that the local planning authority is notified by the developer when a change of use occurs, but it does not propose that there be a requirement to seek prior approval. There will be no site size limits and no constraint-based exclusions.

DLUHC suggests that, where there is a local problem with the number of short term lets, one or both of these permitted development rights could be removed by way of an Article 4 direction. It is clearly anticipated that most areas will wish to retain the right allowing for change of use from short term let to dwellinghouse, even if they remove the opposing right. The consultation confirms that the policy tests for making an Article 4 direction, to be found within paragraph 53 of the NPPF, will not be amended and so an authority hoping to make one will need to be based on robust evidence and apply to the smallest geographical area possible.

Properties which fall within use class C5 will benefit from the permitted development rights which currently apply to the curtilage of a dwellinghouse such as rear and upward extensions, alterations to the roof, porches and outbuildings.  

Another proposal the subject of consultation is for a limit on the number of nights for which a property within use class C3 and is a sole or main dwellinghouse may be let without there being a material change of use. DLUHC tells us it is open to suggestions as to how many nights this should be, but it will apparently only consider numbers divisible by 30 – listing 30, 60 and 90 as potential options. Two legal mechanisms for achieving this are proposed: the first is to create a new permitted development right allowing for the use of the C3 dwellinghouse for temporary sleeping accommodation for a fixed number of nights per year, the benefit of this being that the right could be removed by Article 4 direction. The second and alternative means is by incorporating the limitation on the number of nights into the wording of use class C3 itself.

DLUHC appears to be trying to be helpful by proposing a specific number of nights for which a property may be let, within which it says a material change of use will not have occurred. There is an obvious attraction to giving homeowners certainty that they may do this without planning consequence. Trying to achieve it in this way, however, reveals what must be a basic misunderstanding as to the law relating to material change of use. Supposing that the Government eventually settles on a limit of 30 days: it is not necessarily the case that the use of a dwellinghouse for short term let for, say 31 or 35 (or any other number of) days, will result in a material change of use. A change of use is only development if it is material, and materiality is assessed with reference to a range of factors which are often site- or proposal-specific. To make the use of a dwellinghouse as a short term let for 31 or 35 days a material change of use, would need specific legislative provision, absent which subjective judgments will remain determinative.  

This has already been done in respect of properties in London, which can already be let for up to 90 days per year. Beyond 90 days, an application for permission to make a material change of use is required and the consultation confirms that this provision will be unaffected by the changes proposed within this consultation. One infers that DLUHC haven’t simply mirrored this approach across the country so that individual local planning authorities may elect to remove the permitted development right to let a main residence for the limited number of nights if they consider it necessary to do so.

Of course, the ability to use a dwellinghouse as a short term let is subject to the planning conditions and obligations which affect the site, and might be separately restricted, for example by way of covenants in a lease. Whether the changes proposed in the consultation affect the operation of existing planning conditions or obligations may depend on their specific wording.

So, stepping back for a moment, how is all this really going to work? So much is going to come down to the extent to which local planning authorities introduce article 4 directions removing the proposed permitted development right to go from C3 to C5 and indeed the Government intervenes (as it has in the past ) to restrict the scope of directions which it considers to be too wide or unjustified.

If there is no article 4 direction in an area, C3 properties will be able to be used for C5 short term let use without the need for planning permission – liberalising the current position where more than ancillary short-term accommodation use (more than 90 days of that use in London – a restriction which would remain) would amount to a material change of use. In such areas, use of properties in Airbnb type use could be maximised.

The onus is going to be on local planning authorities to do the work and justify appropriate article 4 directions.

There is a separate but related consultation currently underway on a registration scheme for short term lets, led by the Department for Culture, Media and Sport. Having conducted a recent call for evidence, it considers that a registration scheme is necessary to enable local authorities to effectively police the limit on the number of nights.

I wrote a blog post Time To Review The “C” Use Classes? back on 1 July 2016. It is obvious that a more comprehensive review is needed than what is currently proposed.

Simon Ricketts, 14 April 2023

Personal views, et cetera

Sinclair C5, courtesy wikipedia

VIP, Biscuits: 2 More Refusals For Major Projects In London

“Getting messy isn’t it?” was how I ended my 26 January 2019 blog post The Secretary Of State & London.

Two more decisions to note since that blog post:

VIP Trading Estate and VIP Industrial Estate, Charlton

I suspect that this is the first example of a London Mayor calling in an application for his own determination and refusing it. In the final month of his mayorality in April 2016, Boris Johnson had agreed to defer a decision in relation to Bishopsgate Goodsyard, faced with an officer’s recommendation to refuse the application (it ended up never being determined). But Sadiq Khan’s flip flopping over Leopard Guernsey Anchor Propco Limited’s application to the London Borough of Greenwich for planning permission to redevelop the VIP Trading Estate and VIP Industrial Estate, Charlton has been quite something else.

This is a scheme that started off as comprising 975 dwellings , together with non-residential floorspace, in buildings ranging from nine to 28 storeys. Following consultation responses and comments from the Mayor in his stage 1 referral report, the 28 storey tower was removed and the amount of housing reduced to 771.

Greenwich officers recommended approval but on 9 July 2018 committee members resolved to refuse it on five grounds, namely overdevelopment, insufficient proportion of family sized housing, lack of a safe access to the business premises next door (a building known as Imex House that houses Squeeze’s Glenn Tilbrook’s studio) and introduction of noise sensitive uses, failure to make appropriate replacement employment floorspace provision and daylight/sunlight deficiencies.

Having considered his officers’ stage 2 report dated 13 August 2018, the Mayor called in the application for his own determination. The report sets out the various improvements that would be sought to the proposals as part of the call in process.

Various amendments were negotiated and secured. Officers’ stage 3 report was published for the representation hearing held on 29 January 2019. The report recommended approval.

But then the bombshell at the end of the representation hearing. Despite having intervened to prevent Greenwich members refusing the application against their officers’ recommendations six months previously, and despite amendments to the scheme proposals having been negotiated to officers’ satisfaction, presumably in line with the Mayor’s instructions (if not, was he not paying attention or something?), the Mayor then announces that he is refusing the application. His reasons for refusal published a few days later on 4 February 2019 in part bear a marked resemblance to those of Greenwich’s planning committee: poor design; unsatisfactory relationship with Imex House and introduction of noise sensitive uses; failure to make appropriate replacement employment floorspace provision, and absence of a section 106 agreement to secure affordable housing and other obligations (I’m not sure whether this is a purely procedural reason for refusal or he was actually not satisfied with the affordable package negotiated by his officers: 35%, rising to 40% with grant).

I have no views on the scheme itself, and I accept that of course he must have an open mind during the representation hearing, but what a waste of six months! He says in the letter setting out his reasons for refusal that he “called in this application to subject it to further scrutiny” but that is a poor excuse. He was surely looking to use the particularly useful Mayoral call in power in order to squeeze some further enhancements from the scheme so that, when that had been done by his officers to his satisfaction, he could approve it. In turning it down, where does that leave his officers? And given that applicants are unable to engage with the man himself, can they now be sure that what they are being told by his team is necessary to secure approval will indeed be sufficient?

Bermondsey Biscuit Factory and Bermondsey Campus Site

The decision of the London Borough of Southwark at its planning committee meeting on 6 February 2019 to refuse planning permission for Grosvenor’s 1,342 dwelling build to rent scheme in Bermondsey is another one to be aware of. Members followed the recommendations in the officers’ report, the main reason being that Grosvenor’s affordable housing package was unacceptable, comprising, in summary, that 27.37% of the habitable rooms would be let at an average discount of 25% below market rents, with usual early and late stage viability review mechanisms. (The application indicated that “the depth of discount across the affordable units could vary, with greater discounts offered on some units, but this would require higher rents (up to 80% of market rents) on others to ensure that the overall level of discount does not exceed 25% overall. Grosvenor has described the sum equating to a 25% discount as the ‘subsidy pot’ and suggested whilst this could be distributed in a variety of ways, the impact of the DMR cannot exceed the financial value of that ‘subsidy pot’ “).

The Mayor of London had flagged in his stage 1 report: “Whilst the proposed increase in housing supply is strongly supported, in the absence of an independently verified viability position the proposed 27% provision of affordable housing is unacceptable. The applicant must deliver deeper DMR discounts, including London Living Rent”

Southwark took an equivalent position but the report to committee is interesting in the way that it (1) transparently sets out the differences between the viability work carried out by the parties’ respective viability consultants (GVA – in old money, now Avison Young – having advised the council after the publication of the Mayor’s stage 1 report) and (2) highlights the differences in build to rent (referred to as PRS, private rental sector, in the committee report) affordable housing policy approach in two dimensions: at GLA vs borough level, and as between adopted and emerging plans. Not an unfamiliar position for any developer but particularly difficult for those promoting build to rent (which is, after all, strongly supported in principle by MHCLG and the Mayor of London) as a relatively new product in terms of determining the appropriate approach to affordable housing.

The viability differences are nicely summarised by Mike Phillips (ex Property Week editor) in his 4 February 2019 Bisnow piece Grosvenor’s Bermondsey Rejection Is A Microcosm Of London’s Affordable Housing Quandary.

As to the complexities arising from varying policy approaches to build to rent, a few extracts from the committee report:

⁃ “London Plan policies 3.11 and 3.12 and draft London Plan Policy H5 seek to maximise the delivery of affordable housing, with the draft London Plan seeking delivery against a strategic target of 50%. Policy H6 of the draft London Plan and the Affordable Housing and Viability SPG prescribe a threshold approach to affordable housing to incentivise swift delivery, and draft London Plan Policy H13 applies this principle to ‘build to rent’ products. In this case, a minimum of 35% affordable housing threshold applies.”

⁃ The Mayor’s affordable housing and viability SPG “recognises that Discount Market Rent is an appropriate tenure within PRS developments and considers that the rent level for DMR should be pegged at London Living Rent levels, for households with incomes up to £60,000. The guidance requires affordable housing to be secured in perpetuity, and in addition requires a clawback mechanism if the wider PRS homes are sold out of the Build to Rent sector within 15 years. The clawback is intended to respond to the different financial model applied to the PRS sector and to ensure the developer does not benefit financially if the homes are converted to market sale.”

⁃ The borough’s core strategy “requires that a minimum 35% affordable housing is provided on all residential developments of 10 or more units, with a tenure split in the Bermondsey area of 70:30 social rent: intermediate homes. Applications would be subject to viability assessments if policy compliance is not being offered, with the expectation that as much affordable housing will be provided as is financially viable. The Core Strategy makes no specific reference to PRS housing.”

⁃ The submission version of the New Southwark Plan “requires the affordable ‘DMR’ housing to be secured in perpetuity, and the overall housing development to be secured within the rental sector for at least 30 years” [contrast with the Mayor’s 15 year requirement] with a changed tenure split of 15% social rent and 20% DMR at London Living Rent [contrast to GLA position where it can all be London Living Rent DMR]

Clearly it is going to be key for the parties to resolve their difficulties over viability, whether that requires changes to the scheme or an appeal. This was a decision taken against up to date government guidance on the approach to viability appraisals, the work was relatively transparent and there was not a major difference of principle over benchmark land value. The reality is that the process is not straightforward; there are issues of judgment, particularly when dealing with a relatively untested business model and the need to estimate the rents that will be achievable in an area that will have been significantly changed by way of development. After that, the tenure split question is surely economically subsidiary, although clearly on-site social rented housing will come at greater cost to the scheme’s viability in a number of ways and so there are political choices to be made.

More widely

I’m not sure whether the Secretary of State had either scheme specifically in mind, when he threw his own political pebble into the pond, as reported in the Planner on 31 January 2019: Brokenshire tells GLA to step up (https://www.theplanner.co.uk/news/brokenshire-tells-gla-to-‘step-up’ ). People in glass houses…

In the meantime, the examination continues into the draft London Plan. Hearing sessions are currently considering housing issues, with MHCLG participating. The Just Space website is a useful unofficial resource in relation to the examination, with links to each written statement for each session together with thumbnail-sketch type notes of the session itself.

Lastly, as a postscript to my 26 January 2019 blog post, it has now been reported that Croydon Council as well as possibly the Mayor are supporting Thornsett Group’s challenge of the Secretary of State’s Purley Baptist Church call-in decision.

Still messy, isn’t it?

Simon Ricketts

Personal views, et cetera

Peek Frean biscuits, from Bermondsey.