(And a BIG Planning Problem)
Continuing the learning while we’re in lockdown I’m going to talk about an issue which I believe will grow next year and about which landlords know very little. But first a related issue:
New space standards for permitted development of housing to come into force next April.
On 30th November it was announced that all new homes in England, delivered through permitted development rights, will have to meet national space standards from 6 April 2021:
Regulation 3 of the Town and Country Planning (General Permitted Development) (England) (Amendment) Regulations 2020/1243 (“Regulations”)
“This standard deals with internal space within new dwellings and is suitable for application across all tenures. It sets out requirements for the Gross Internal (floor) Area of new dwellings at a defined level of occupancy as well as floor areas and dimensions for key parts of the home, notably bedrooms, storage and floor to ceiling height.”
- “The Gross Internal Area of a dwelling is defined as the total floor space measured between the internal faces of perimeter walls that enclose the dwelling”. This is helpful because the HMO space standards are not clear and have caused issues which are clarified further below.
- Must have a gross internal floor area of not less than 37 m2.
- A dwelling with two or more bed spaces has at least one double (or twin) bedroom.
- “One bed space in a single bedroom has a floor area of at least 7.5m2 and is at least 2.15m wide.” This is bigger than the current HMO single bedroom space of 6.51m2 and also specifies the width of the room which means more restrictions for the configuration of the building.
- “Two bed spaces, a double (or twin bedroom) has a floor area of at least 11.5m2”. Again bigger than the current HMO standard of 10.2m2.
- “One double (or twin bedroom) is at least 2.75m wide and every other double (or twin) bedroom is at least 2.55m wide.” This will affect loft rooms as will the room height requirement below.
- “A built-in wardrobe counts towards the Gross Internal Area and bedroom floor area requirements, but should not reduce the effective width of the room below the minimum widths set out above”. This is really good news because many local authorities do not include fitted wardrobes in the room sizes currently used for HMOs while others do and this causes confusion and expensive mistakes.
- “The built-in area in excess of 0.72m2 in a double bedroom and 0.36m2 in a single bedroom counts towards the built-in storage requirement.” There is a table showing the required storage space according to the total floor space in the document linked above.
- “The minimum floor to ceiling height is 2.3m for at least 75% of the Gross Internal Area.” Again this is clearer than the current HMO space standard which specify 1.5 minimum height and 2.1m normal height but no detail of acceptable amounts of each.
If an application for prior approval is granted before 6 April 2021 these standards do not apply.
These changes apply to the permitted Change of Use from commercial or office properties to dwellings and the new permitted development rights to extend upwards or demolition and rebuilding of vacant and redundant offices or light commercial buildings.
Coming to the issue I mentioned at the beginning. Most people who have been in the property letting business for any length of time believe that they understand what an Article 4 Direction means when it is introduced to remove permitted development rights from a single dwelling house (family home) to a multi occupied dwelling (HMO). But there are some hidden consequences which only surface after the Article 4 designation is in place and people want to buy or sell a property. In other words although an Article 4 Direction is introduced to give a local authority control over the number of conversions to HMO, it doesn’t end there.
Details of Article 4 Directions are in the Statutory Instrument: The Town and Country Planning (General Permitted Development) (England) Order 2015 here
There are specific procedures which a local authority must carry out in order to introduce an Article 4 Direction, including a 12 month publicity and consultation period before the date of introduction if they want to avoid expensive litigation.
When Birmingham City Council announced that they intended to introduce an Article 4 Direction across the whole city this was not a surprise to me but it was a shock to many investors who were planning future developments in the city. The reason that it wasn’t a surprise is that during the meeting which I attend, BCC have made it clear that the loss of family homes, which has escalated over the last ten years, is causing great concern. Birmingham City Council is the largest local authority in Europe and therefore anything which happens in other cities and towns means that the workload is multiplied in Birmingham, where they have very limited resources for the size of the job. They needed something to put a stopper in the drain and reduce the loss of family homes offered for rent by private landlords to give them time to increase the stock of council and Housing Associations owned social housing.
According to the Guardian last month:
“Waiting list for council homes in England ‘will double to 2 million”
The article was actually about the number of expected evictions from private rented property once the restrictions are lifted in the Spring, but the point is well made that private landlords take up the slack where local authorities and Registered Social Landlords cannot meet the demand. Up to 3,000 bids are received when a single council property becomes available in Birmingham and the waiting list grows daily as does the number of people the city has a statutory obligation to house in emergency accommodation. In the pack handed out to those looking for accommodation the following information is very daunting:
- The city council has approximately 61,000 properties, and this is decreasing each year – in 1981 the council had over 123,000 properties.
- There are currently over 13,000 households on the housing register.
- The council let only 3,905 properties to customers in the last 12 years, and this is decreasing each year.
- Even if no new applicants came forward, it would take three and a half years to clear the current housing waiting list.
- 30% of the properties are one bed or studio flats and bungalows.
- 44% of properties are flats (including 4% of which are maisonettes).
- The council has over 3,000 households living in Temporary Accommodation.
They needed an answer Enter Article 4 Direction.
The designation began in the city on 8th June this year. We did ask them to delay it, because of Covid 19 and the difficulty getting contractors to finish developments, but they wouldn’t do that. They did say that they would allow some leeway in that they would give a little time to get tenants into newly developed small HMO before exercising the restriction. They had previously insisted that the landlord of property had signed contractors from HMO tenants at the date of the last smaller designation, which ended when this one began.
Under the Town and Country Planning (Use Classes) Order 1987 (as amended) a dwelling house is a house which is used by a single household and a property to be occupied by more than 6 unrelated people sharing facilities (HMO) requires planning permission for Change of Use. A property occupied by 6 or less (HMO) has permitted development rights and does not need Planning Permission, unless this is removed with the introduction of an Article 4 Direction. At this point any Change of Use from a single household dwelling house to a multi occupied house (HMO) of 3 or more unrelated people must have Planning Permission.
This gives the local authority complete control over the loss of family homes, it is not an “anti landlord” move as many want to believe, it’s an obvious solution to a huge problem and I don’t know why it’s taken them so long to do it.
Anyone who has done their due diligence before investing in an area should know all this but now that we are all clear – what’s the problem?
I am going to share with you a true story of a landlord who didn’t realise that he had a problem until the day he was due to complete on the sale of a 7 bedroomed HMO and …
I received the following email from the landlord who needed help:
“ I was due to complete the sale of my H.M.O with 7 tenants when on the morning of completion I was asked for proof of large H.M.O planning approval for change of use, building regulations and planning consent. When I couldn’t provide this information the sale did not complete.
I contacted the Planning Department by email because there isn’t another option at the moment. I was asked for proof of occupancy as a 7 bedroomed HMO for the last 10 years. I haven’t got that proof. I was told that up to a 6 person HMO all I would have needed was proof that it was let to 6 people on 6th June when Article 4 began but for 7 and bigger they want a lot more.
I am hoping I can resolve the situation with an indemnity policy, for this I need to show 4 years use as an 7 person HMO
With reference to the planning department my friend has been dealing with them regarding another property and was advised due to it being a 7 bedroom HMO he would require planning permission. I think he may have misunderstood but he thinks that he would require 10 years records to get this retrospectively.
It would appear 6 bedroom or smaller HMOs are easily dealt with records showing it was a 6 bedroom HMO prior to article 4 on 6th June 2020”
I am waiting for clarity on the retrospective planning permission but I believe that they do require evidence of 10 years as an HMO in order to grant retrospective permission. I am going to try to help this landlord, not least because there are many other landlords in the same situation and many of them don’t realise yet, but developing without Planning Permission and Building Regulations might seem like an easy thing to get away with – until you want to sell and the buyer’s Lender wants to be sure that they are not going to lend on a building which may have to be demolished to be returned to its former state.
I was interested in the option of buying an indemnity but in fact the buyer’s Lender would not accept that and insists on full Planning Permission.
A couple of months ago a similar case was discussed in an online property group except in this case the landlord was trying to refinance the 9 bedroomed HMO and he couldn’t because he also hadn’t applied for Planning Permission nor Building Regulations. He was struggling to understand why the same council had given him an HMO licence. It was pointed out that Planning and HMO Licensing are two different departments which often do not communicate with one another. In fact it should have been a condition of the licence that he provided the PP but it wasn’t. That landlord now cannot refinance to pull money out and is going to struggle to sell the property just like the first landlord.
Going back to the Article 4 Direction; when the lender is aware that there is a designation in place they will want a Certificate of Established Use or other official evidence that the Planning Department have accepted that the property was an HMO at the date of the designation, there is no way around that. An HMO licence won’t be enough. Even a small HMO that may not need a licence, 4 person and smaller, needs to show that Established Use, but for the larger building housing 7 and more you must get the right permission or face a whole world of pain when you want to sell or re-finance. Even where there have been no physical changes to the building it is the CHANGE OF USE which is relevant and this is where landlords who have not asked for Planning permission for that change will struggle.
Expect to see more local authorities introducing Article 4 Directions when COVID19 is over. Unlike Licensing, which relies on tenants reporting or intelligence from other agencies, local authorities will soon find out about properties which have no Planning Permission or Building Regulations for the development of the building and also those which have not been developed but have had a Change of Use without Planning Permission. When the owner wants to sell or refinance the property he will be forced to ask the local authority for retrospective Planning Permission. It won’t cost the local authority anything and it won’t be long before they have good statistics about the number and spread of HMO in their areas. Most local authorities want to balance the number of affordable HMO rooms with the number of family homes in their communities and the more accurate their stats are the better we can judge our chances of obtaining Planning Permission for a Change of Use when we want to develop in that area.
How it’s possible that, in 2020, local authority departments are not linked to one another sharing details about these properties in their area is difficult to understand but there is going to be more information sharing in future and getting caught out, at the last minute, when selling will hopefully be a thing of the past. It will mean that we all need to be fully compliant before we start developing or we may well be caught for something as simple as Council Tax showing 7 individuals living in the property, especially if they are claiming student exemption.
I didn’t want to end 2020 on a low note but the learning from this is to do the right thing and avoid an expensive mistake which you cannot refinance or sell when you need to. If you are buying remember those space standards, Established Use and ARTICLE 4 DIRECTIONS.
I hope that you can spend some time with those that you love over the holiday. Stay safe.
I wish you good health, peace and love for 2021.
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