Jane Gunnell, in our Commercial Property team, explains the impact of the reform of the Use Classes Order on commercial leases.
In 2020 the Government launched “Project Speed” with a view to rebooting the economy post pandemic. Part of this programme was the introduction of reforms to the planning system and allow greater flexibility to change uses, particularly within town centres, without the need for a planning application, through reform of the Use Classes Order.
According to the Government announcement on 30 June 2020, “a building used for retail, for instance, would be able to be permanently used as a café or office without requiring a planning application and local authority approval”.
The Town and Country Planning (Use Classes) (Amendment) (England) Regulations came into force on 1 September 2020 and introduced three new Use Classes, one of which is E (Commercial, business and service) which encompasses a wide variety of uses from retail and restaurant to office, professional services, indoor sports and medical and nursery uses. Changes of use within this new Class E will not constitute development so will not need planning permission. The new flexibility applies wherever the premises are situated so could lead to the introduction of non-office activities (including restaurants and retail) in out of town business parks which would in fact be contrary to planning policies designed to protect town centre high streets.
These days, commercial leases typically restrict the use of premises by reference to the relevant Use Class, typically Class B1(a), or less commonly, A2 Offices. This makes it absolutely clear what the tenant is permitted to use premises for and avoids the need to describe the use by using words alone. Commercial agents putting together heads of terms for office lease deals are starting to refer to the new Use Class E, as former Use Classes A2 and B no longer exist, but this is raising objections from both landlords and tenants and their lawyers.
Landlords will generally want to retain control over the precise use to which their properties are put and may consider the flexibility of the new Use Classes to be excessive, but taking another view, may also welcome the possibility of increased rent on review and higher asset values. Because of the potential impact on rent reviews tenants will generally want to retain a narrow use description.
To add further confusion, some leases incorporate a reference to “the Use Classes Order, as amended and replaced from time to time” which could have a dramatic effect, especially on lease renewal and on rent review. In any event, increased litigation is anticipated.
On a recent transaction that we handled with Class E heads of terms, the landlord’s solicitor provided a draft referring to B1(a) as in force at 31 August 2020, as it was considered too risky to refer to Use Class E. The reason given was “the judicial review”. The new Regulations had been the subject of a crowd funded legal challenge launched by climate emergency activists even before they even came into force, and the judgment given on 17 November to throw out the claim could still be appealed.
It is still early days and in our view extreme care should be taken on the drafting of user clauses in commercial leases. It may be that the safest approach is to go back to the old school approach of describing the permitted use by using words alone, for example “offices” or “retail shop”.
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This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.