The Covid-19 pandemic had a profound impact on the world, fundamentally changing the way we live, work and conduct business. Among the significant shifts was the transformation of commercial property usage. With remote working, changing social behaviours and lockdowns, the landscape of commercial real estate underwent a metamorphosis and now is the time to examine the future of commercial property usage in the post-Covid era.
How can office buildings adapt since the shift to hybrid working
As we emerged from the pandemic, we witnessed more and more businesses shift to a hybrid work model as employees were reluctant to return to the office. To help businesses get the most from their commercial real estate, in September 2020 the Government made changes to the planning rules to make them more flexible, allowing for changes between a range of use classes without the need for planning permission. This new broader Class E banding brought a wider range of business use classes under one umbrella, paving the way to allow for a more diverse use of property that was not possible previously.
Now office space falls within the same bracket as cafes, restaurants, indoor sports centres and health and childcare settings, to name a few. As a result, we have seen a rise in the popularity of shared spaces, property being occupied on a mixed-use basis and changes of use as businesses quickly adapted to the new way of working. Whilst Class E has allowed for a greater degree of flexibility, care should still be taken to ensure that planning permission is not still required for your change of use, particularly where the change requires alterations to the exterior of the building, in which case it is always best to seek consent from the local authority.
What provisions do landlords and tenants need to be aware of in their commercial leases?
Planning is only forms part of the wider picture however, and Landlords and Tenants alike ought to be aware of provisions in their leases, title documents and mortgage agreements which may impose tighter controls on the use of the property.
Typically, a commercial lease will specify a permitted use. Some leases will refer to a use class and some are more narrow, particularly where a Landlord may wish to keep a tighter control on the use because a change may affect the investment value or breach a mortgage condition. Depending on how the lease is drafted, there may be a provision to allow for a change of use, subject to the Landlord giving its consent, but this is not always the case.
What title covenants should landlord and tenants be aware of?
In conjunction with the lease provisions, one should consider any covenants which may be imposed on the property that may restrict the use of the property. This is fairly common in property that forms part of a shopping centre for example, or an industrial estate where the freeholders wish to keep the types of business operating in the area to similar nature in order to encourage more business to the area.
Lastly if the property is mortgaged, there may be restrictions on how the property can be used and a change of use without the lender’s consent could result in a breach of the terms of your loan.
How can Morr & Co help?
If you are thinking of taking a new lease, or you are considering a change of use and need expert advice, please get in touch with one of our specialist commercial property team who will be able to assist you either by email on [email protected] or call 01737 854 500. Equally if you are a landlord and have been approached by your tenant and are not sure how to proceed, please do get in touch so we can advise you.