Alan Massenhove, partner at Sykes Anderson LLP discusses how the recent changes to the use classes system interact with leases of commercial property with the owner of successful nightclub and restaurant businesses.
Q. I have heard that significant changes to the use classes system have recently come into force. What is the use classes system?
The use classes system is a classification of property uses where uses seen to be similar or related are placed in the same category or class. In most cases a change of use within a class will not be a material change of use and will not require planning permission. For example, use class A1 is shops - planning permission will not be required for a change of use from e.g. a clothes shop to an electrical goods shop. There are a number of use classes in force as defined by the Town and Country Planning (Use Classes) Order 1987 ("The 1987 Order"). This is complemented by the General Permitted Development Order 1995 which permits change of use between certain classes without planning permission.
Q. So I take it these use classes have now been changed?
Correct. The recent changes came into force on 21 st April 2005 and represent the biggest shake up of the use classes system for almost 20 years. The key idea behind the changes is to tighten planning controls to give local planning authorities more control over nightclubs in particular, but also pubs, bars, restaurants and hot food takeaways. All of these establishments were previously classed as use class A3 for planning purposes but now they have been split into three different use classes and permission will be required for a change of use between certain classes in accordance with the General Permitted Development Order, which has also been amended. In addition to this, Nightclubs have been removed from the use class system so that change of use to or from a nightclub will always require planning permission. Also affected are retail warehouse membership clubs which have been excluded from the use class system as well as motor car showrooms which will now need planning permission to change to A1 use (shops) and the position of internet cafés has been clarified as being A1 use.
Q. My nightclub business is doing well and I am currently considering investing in other premises for a second nightclub. How will these changes affect any new premises I look at?
If no other factors are taken into account, the changes will only affect you if you want to change the use of premises after 21 st April 2005 or seek planning permission for the first time after that date. If premises have unused A3 planning permission dated before 21 st April 2005 they may still be used for any of the old A3 uses. For example, if you have planning permission dated 20 th April 2005 to build premises for A3 use, you can choose whether to use those premises as a restaurant, pub, hot food takeaway or nightclub. Once you have made your choice, the use class will then be fixed, so if you choose to build a nightclub, the existing planning permission will allow you to do so but any change of use in the future will require planning permission in accordance with the new regime. There may be the practical issue that Local Planning Authorities will be more reluctant to grant planning permission for certain uses, bearing in mind that the aim of the amendments is to allow the Authority increased control over the affected classes of premises.
Q. Is it nightclubs that are most affected by these changes?
Yes although restaurant owners may also be affected. Hot food takeaways and pubs will still be able to become restaurants and cafés in accordance with the amended General Permitted Development Order however restaurants will require planning permission to change use to a hot food takeaway or a pub or wine bar. Nightclubs, as mentioned, will be excluded from the use class system and premises will require planning permission for any change of use to or from a nightclub.
Q. Why might these changes affect tenants more than freehold owners?
The new regime could have an effect on tenants of commercial property because the lease may not necessarily fit with the law as amended. Depending on how the lease has been drafted, this could put the tenant in technical breach of the lease which may cause problems in some circumstances. The absolute worst-case scenario could be that the lease may be liable to be forfeited although it is unlikely in practice that the courts would permit an attempt to forfeit the lease on the basis of underlying statutory changes when the tenant is continuing to use a property for the same purpose as originally agreed with the landlord.
Q. I have had problems with my landlord in the past and would like to avoid further problems. What can I do?
The first thing that you need to do is to check the provisions in your lease. Most leases have a 'user' clause which either specifies a particular use or refers to a use within a use class. If the user clause refers to a use within the use classes system, there may be problems if your lease is drafted in a way which means that the new use classes are incorporated into the user provisions. For example if the lease refers to A3 use under the 1987 Order and, under the terms of your lease, this is to be interpreted as the Order as amended from time to time, this would mean that the 2005 amendments are incorporated into your lease. As a result, the permitted uses under the lease may be reduced or different from the actual use of the premises so in the example the use as a nightclub would strictly speaking be in breach of the lease as it would no longer be as A3 use. This might also restrict the tenant's ability to assign the lease.
Q. In what circumstances are problems likely to arise?
Typically problems with leases may arise when you assign the lease, sublet the whole or part of the premises or on a rent review. These often rear up as with all other contracts, when a party looks for them and make an issue out of them to serve their own purposes. There is no reason to suspect that problems occurring in respect of the statutory changes will be any different.
Q. My rent review is due shortly. How could problems arise on a rent review?
The new rent on a review is often assessed by reference to certain assumptions expressed in the lease. One assumption is likely to be that the property can be used for any use permitted by the lease. If the new use classes rules apply to the interpretation of the lease then this might either expand or reduce the type of use which the lease permits. If the property could be put to more (and in particular more profitable) uses the rent may be more on review and vice versa.
Q. What about the other situations when the changes might be a problem?
As mentioned in the nightclub example earlier, if the new rules affect the lease, it may be that the current use of the property no longer falls within the use permitted by the lease even though that use was clearly envisaged or permitted by the lease originally. Whilst it may be difficult for the landlord to forfeit the lease, if you want to assign or sublet, the new tenant and their solicitors will almost certainly want to make sure that the actual use is permitted by the lease. This could well mean seeking the landlord's co-operation to vary the terms of the lease which they may not be obliged to give.
Q. So what should I do?
If you believe that there may be a problem, you should consult a solicitor before taking any decisions. The solution to any problems faced in these circumstances is likely to depend almost entirely on the precise wording of the lease. If you are aware of the potential pitfalls and take proper advice, you may be able to prevent the problems from occurring. It may be that it is best to keep quiet but the tactics will depend on the particular situation.
More information
Whatever your situation Sykes Anderson LLP can give focussed, sensible and commercially sound advice. Please contact Alan Massenhove in our Litigation and Dispute Resolution Department for more details.
They can be contacted by telephone on 020 3178 3770 www.sykesanderson.com
Please note that this area of the law is a complex subject and you should not take or refrain from taking any step without full legal advice on the particular facts of your case. The content of this article is of a general nature and no liability is accepted in connection with it or if any reliance is placed on it.
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