Q&A: Converting commercial property to residential

A. The term commercial property applies to any building designed to turn a profit – a gym, warehouse, supermarket, cinema or office block, for example.

For the purposes of this Q&A, we will be focusing on smaller commercial premises which could be converted into just a single home.

A. Yes, but you may need planning permission. Push on without it and you’ll be in planning breach, which could land you in legal and financial hot water.

In some cases, commercial property for sale already has planning permission granted.

A. You’ll need to apply direct to the local planning authority (LPA) department of your local council. Application fees vary from between £96 to around £462 for full planning permission change of use. Each LPA operates slightly differently so be sure to engage with them early on in the process.

A. Not always. In 2013 the rules changed, which meant some kinds of commercial property could be converted to residential without the need for full planning permission.

This is under something known as Permitted Development Rights (PDRs) which are granted by Parliament rather than local authorities.

Whether you can use PDRs to escape full planning permission will first hinge on which 'use of class' the commercial property falls in to.

A. Here are some broad examples of use of class:

Class A

Shops and other retail premises

Class B

Offices, factories, workshops and warehouses

Class C

Residential institutions, hotels and hostels

Class D

Non-residential institutions, assembly and leisure

These categories are further divided into subclasses.

Class A1 for example includes shops such as hairdressers and dry cleaners, whereas class A2 refers to financial services, such as banks and estate agents.  

Class B1 refers to offices suitable for residential areas, such as those involved in research and development, while class B2 premises might carry out light industrial processes.

Class C3 refers to residential property.

A. What's allowed under PDRs changes – the most recent legislation was introduced in May 2017.

For example, for applications received since October 2017, it's possible to convert B1c (light industrial) to C3 (residential dwelling) without full planning permission.

B1c premises are the most popular commercial-to-residential conversions because they are most commonly found in residential areas.

Other commercial-to-residential conversions (such as from class A1 and A2) may also be permitted without full planning permission, so long as the size of the premises does not exceed 150 square metres. 

However, even if planning permission is not required, you’ll still need to seek ‘prior approval’ from your relevant local authority. Again, costs should be no more than £200. 

There could be other restrictions too. The B1c to C3 conversion set out above, for example, requires that prior approval is granted before October 2020 and development is completed within three years of the date it was received.

And bear in mind it's only the change of use that's permitted, not the conversion itself. In other words, if you need to knock down walls or add an extension, you could still require planning permission.

For more information, visit the Planning Portal website.

A. You’ll need to go through the full planning permission process and the LPA might also request full architectural drawings.

Work may need to be completed to a specified standard and require more expensive materials.

Bear in mind that if the commercial property is within a conservation area, National Park or Area of Outstanding Natural Beauty, it might be treated as listed.

A. If you need a mortgage, lenders will require that at least 70 years are remaining on the lease. You will also need the permission of the freeholder before you can begin any work.

A. You can search for estate agents that specialises in commercial property by location on Zoopla. Look also at local commercial property auctions.

A. In terms of averages, commercial property prices are higher than residential, according to Zoopla data – but bear in mind that these figures incorporate large buildings such as offices and warehouses which bump up averages.

The cost of an individual commercial premises will depend on its location, state of repair as well as its potential for conversion – including whether it already has the relevant planning permissions.

A. You’ll face all same buying costs you would with a residential property. This includes stamp duty (although this kicks in for commercial property at £150,000 opposed to £125,000 for residential homes).

If you plan to remain in your existing home while work is carried out, you won’t be hit with the higher stamp duty rates on the purchase of your ‘second home’ as non-residential and mixed-use properties are exempt.

You’ll also need to pay for solicitor’s fees, local authority searches and a specialist buildings survey on the structure of the commercial property.

The cost of the conversion itself will depend on the scale of the project but it could run into tens of thousands of pounds and upwards.

You may have to pay for improving soundproofing and thermal insulation as rules around this differ between commercial and residential premises.

Also budget for any changes to drainage, water and electrical systems that might not currently be geared up for residential use.

Finally, be prepared for hidden costly problems which are only uncovered when the building is stripped back.

A. You will go through the same process of exchange of contracts and completion as you would with a residential purchase – although you’ll need a solicitor or lawyer who specialises in commercial property to carry out the conveyancing.

In some cases, buying a commercial property can be simpler as it doesn’t typically involve an ongoing chain.

A. When buying a commercial property to convert to a single home, there are two main funding options.

The first is a self-build mortgage which – despite the name – can be used to fund the conversion of property, not just building one from scratch.

With this type of mortgage, you borrow the amount required for the actual purchase and the money for the development is paid in stages.

However, these stages are paid in arrears which means you’ll need to fund each stage of the work yourself – the lender will reimburse you once it’s satisfied the stage has been completed to its specified standard.

The second option is a bridging loan. This can cover 100% of the cost of the work upfront – but comes with much higher rates of interest, so you’ll need to be confident the project won’t overrun.

When the conversion is complete, you can have the property valued and refinance on to a much cheaper standard residential mortgage. 

An independent specialist mortgage broker will help you find the right funding for your project.

A. The rate of office-to-residential conversions in England went up by nearly 40% between 2016 and 2017 according to estate agents Savills.

This could be due to many small businesses being forced to shut down due to the mounting cost of business rates which has resulted in more commercial premises for sale.

A. This depends on a number of factors including price, location, and how much work needs doing to complete the conversion.

Talk to a range of experts including local agents and an architect so you can carry out careful costings and ensure anticipated returns will meet your expectations.

Is a commercial-to-residential conversion anything that you would ever consider? Share your thoughts in the comments section, below...