Making sense of the new Use Classes Order in England and looking forward to the new proposals for planning reform

Simon Sharp

Just as people are completing the registration process and joining, I just thought I’ll kick off and introduce things, so hello, good morning, and welcome to the latest in the series of BCLP Real Estate Finance Webinars, although I should say this with much more emphasis on Planning this morning than on the finance aspect.

So just to briefly introduce myself, I’m Simon Sharp, I am an Associate Director in the Real Estate Finance team at BCLP and I’m joined this morning by Tim Smith, who is a partner in our Planning team. Tim, good morning, can you hear me?

Tim Smith

Good morning, I can, all good.

Simon Sharp               

Excellent, so I think we’ll just like to say again very briefly, apologies to those of you who tried to dial in last week when the video conferencing system crashed, unfortunately these things do occasionally happen which is beyond our control; but we’re very grateful to you of course for dialing back in today, of course it’s great to see those who are truly committed to learning about planning reform and discussing it, so great to have you all with us this morning and for dialing in twice.

So we have a session of 20 minutes this morning, it’s a short session but it’s an important enough topic. We’re discussing planning reform. Its once again back in the spotlight and its likely, or it’s expected to play a central role in the UK’s economic recovery from the COVID-19 pandemic and we’re going to see while there is much up for discussion, and a picture is beginning to emerge of an intention to make it easier to build and to repurpose land and to support a national economic recovery, but as well, completely aside from the covid pandemic, there is the desire to introduce changes to the planning system.

So just to briefly set the scene for what we’re going to discuss this morning. The long awaited and delayed Government Planning White Paper was finally published on the 6 August this year, and there have been major changes to the Use Classes Order and the committed development rights as well which came into effect on the start of this month. Now, clearly we’ve all lived through previous Governments promising wide planning reform, but this time maybe things are a little bit different given the landscape where the viral pandemic is a backdrop and for a wide economic stimulus I suppose. So, there is now signals of more fundamental change being afoot and you know are we clear on what those changes should be, are there more to come? So as planning looks to be a big part of the story for the next few years now seems to be a good time to look at planning reform and to asses what’s on the table now.

I should just say before we come into this question and answer session which this webinar will take the form of, there is a significant number of individuals and indeed institutions on the line, do feel free to submit comments and queries via the comments function. I suspect and apologize that we probably won’t be able to answer them live on the call this morning, if we can do we will do, but it’s of course very interesting to hear people views and we can of course, read their comments and come back to you as appropriate if you’d like us to offline. So we’re very happy to do that so please if you have comments please do let us know.

Tim, so in terms of opening with a discussion, planning reform, it’s back on the agenda. We’ve heard promises of fundamental reforms there are changes to Use classes and permitted developments and now we have the white paper. Why is it relevant to this point? What’s the government seeking to achieve and why is it happening?

Tim Smith                     

Thanks Simon and good morning everybody.

I think you are right to identify that planning is more in the news recently than it has been for a while and certainly some of the reasons for that will be Covid related but some of them won’t be.

On Covid what we’ve already seen earlier this year through the Business and Planning Act are some changes to the way in which consultation on planning application works reflecting the fact that face to face consultations and set piece presentations are not capable of being done in the same way that are outside of the lockdown situation and we’ve also seen some legislative changes which lead to the automatic extension of some planning permissions that would otherwise expire in the period covered by lockdown measures. We’ve also seen some changes which I might characterise as being an attempt to give the economy a shot in the arm for when lockdown measures are removed, I think that probably they use classes, which we will spend some time talking about it this morning, could fall within that sort of category for reasons that we’ll go on discuss but then there are others, the planning white paper for example, which would have happened anyway that seems to be the case that any new Government can’t resist tinkering with the planning system, tinkering fundamentally, as they might say and as they all say, but I think a lot of the changes which are proposed there are not covid related. They have somehow eclipsed the covid related changes and the tangible changes that we’ve got through the Use Classes Order but they would have happened anyway and they’re not a response to the pandemic and lockdowns.

So I think that just help to set the scene for why we seeing so many proposed changes to the planning system at this particular time.

Simon Sharp                 

Okay.

So what we’ve got is committed developments and use classes changes that are effectively already now part of the law and then we’ve got a white paper that is sort of to be discussed. So maybe we would dive first into the committed developments and use classes changes and this could bear already part of the fabric of what we have in place.

So I guess the background following near the 2018-2019 consultation we now know the changes to the use classes order, so in a nutshell what are those changes?

Tim Smith                     

So this section is timely and would be even more timely last week because I would have been able to say that the changes came into force yesterday , but they came into force with effect being 1 September and I think those who have tuned in will be broadly familiar with how the Use Classes Order works in planning. That every type of use is characterised within a particular class of use governed by the Use Classes Order or in some unusual cases they are characterised as a sui generis use which is an individual use in its own right. And in a nutshell what the changes which have come into force address is that they abolish the previous A Class uses so the retail class of use and the D Class uses and instead they redistribute them into new Class E and Class F uses or in some cases sui generis.

So what does that mean in practice? Class E is the one which has had the most comment and the most concentration from people and it is the commercial business and service class. It is a new class which has been introduced with effect from the 1 September, it includes all of the old use classes A1 A2 A3 so retail, financial professional services and restaurant uses. It also includes indoor sport and recreations so gyms, for example, and also alpha medical and crèche day nursery. So we’ve got a new super class, if you like, which deals with many different things under the previous use classes or they’re redistributed over more than one.

We have then got Class F which is split into two parts, Class F1 is probably of less significance learning and nonresidential institutions so its things like schools, universities, courts, art galleries alike and then we have Class F2 which is local community uses and these cover things like swimming pools, community halls, local shops subject to a certain size limit. That size limit for local shops is 280 square meters but it’s a requirement for local shops to be characterised as F2 that there be no similar facility within one kilometer so very much the local facility for local people. So we have now got Class E, Class F1 and Class F2.

A couple of things just to note from the previous Use Classes Order which are not sui generis uses and that’s the old Class A4 and A5, pubs and takeaways probably of less significance are cinemas and music venues are also characterised as sui generis. So those are the changes which have been brought into effect. What that means is that if you had on the 1 September, let’s say an A Class, A1 Class use is now treated as being a Class E use and the changes which you are allowed to undertake because of that, which will no doubt come on to talk about, are available to you. So if you were A1, A2, A3 before the 1 September, with effect from the 1 September, you’re now Class E. So it’s a change which has already taken effect.

Simon Sharp                 

Potentially much, much wider for some.

Tim Smith                     

Yeah.

Simon Sharp                 

In terms of the permitted development rights, what are the, sort of, the key changes that we’ve seen there?

Tim Smith                     

I think, probably of less significance to this audience, Simon, because a lot of them are more domestic in scale...

Simon Sharp                 

Yeah.

Tim Smith                       

... and for that reason they’ve attracted more attention from the media, but they are things like being able to build on top of existing residential property on a slightly larger scale, you can now build up to three stories on existing detached blocks of flats, up to two stories on existing residential, up to two stories of flats on detached commercial buildings and the one which has perhaps attracted more attention than most is the ability to demolish existing blocks of flats and build up a replacement as permitted development, so that’s quite unusually extensive for permitted development rights. But, equally, the number of circumstances in which those will be available are pretty few and far between, so I think probably the Use Classes Order are more significant for those people who are tuning in today.

Simon Sharp                 

Yeah, that’s probably right. I mean, is it worth us just exploring what the, what the at least the stated reason is for some of these changes?

Tim Smith                     

Yes, I think the stated reason for all of them is broadly the same, which is the Government looking to liberalise the planning agenda to allow greater flexibility for businesses to adapt to the changing needs in planning, in particular the demands for the high street and how the high street is being re-characterised away from the traditional high street row of retail shops to something which is more food-and-beverage-based.

I think the Use Classes Order certainly will be effective in achieving that, because having built in to Class E what were some quite disparate uses, you don’t need planning permission in order to change from one use within Class E to another use within Class E. And so you can get some very significant changes on account of that. We’ve got offices and retail both within Class E, so in principle, one can change from retail to offices, offices to gym, gym back to retail, without needing planning permission. Pubs and takeaways has probably gone the opposite way because now it’s been characterised as sui generis and there’s less flexibility to change from those to anything else.

Permitted development rights I think is headline-grabbing, for sure, but one of the difficulties with it is, to look at the small print, and there are lots of areas where those permitted development rights do not apply, they don’t apply in conservation areas for example, and there’s also a number of situations in which the local authority can take away that flexibility which the permitted development rights otherwise would have granted. So Use Classes Order I think is a good story in terms of flexibility, permitted development rights I think is more about what the story doesn’t tell you for that availability.

Simon Sharp                 

Sure. I mean, you had mentioned the small print there. That’s relative to the extent the devil is in the detail and that it is only gonna come out in practice, when people try to interpret this new legislation. So, are we clear on what all of the nuances are at this point, for these changes?

Tim Smith                     

I think whenever one gets radical change, and the Use Classes Order does fit within that category, I think a radical change, there’s always a desire to see a little bit more of the thinking behind it and the explanation around it. We were promised changes to the Planning Practice Guidance, the PPG, which explains how some of the Use Classes Order works, how some permitted development rights work, and we were promised those by the 1 September. They certainly haven’t come in by the 1September, I looked last night and they hadn’t come in last night either, so the explanation that we were promised for how the Use Classes Order changes will work is still awaited. And it’s always tempting for lawyers to say, “well here’s a change, what does that mean, we could do with some guidance to be able to explain this,” but just to give you a practical example of why guidance is gonna be beneficial, take that idea of the community shop, no more than 280 square meters selling local convenience goods where there’s no similar facility within one kilometer, it’s conceivable that you could be consented as a Class F2 local community shop because you meet that criteria, but then during the course of your operation, another shop happens to open up within that one kilometer radius, now does that mean that your F2 community shop automatically changes to become a Class E retail unit, because it no longer meets the criteria from when it was granted? It would be unusual to find that the use class of your property changed by reason of something that you have no control over, and yet on its face that could well be one of the implications of defining so narrowly the community shop within Class F2. So guidance I think will be helpful to us, and the guidance is still awaited.

Simon Sharp                 

Well, we’ll wait for that. And, in the meantime, should we look at this as the wider picture, what’s this going to mean in practice for owners and asset managers?

Tim Smith                     

I think broadly it will deliver the flexibility that was part of the government-stated agenda and it will prove to be a chance to switch between uses that hitherto local authorities have resisted in planning applications. There are, for example, a number of local authorities that have policies which will resist the loss of office floor space within their areas, and one could now find that because office and retail are within the same use class, a switch from offices to retail that would not have been permitted on a planning application before the 1 September, cannot now be avoided by the local authority because it’s a change within the same use class that doesn’t require planning permission.

On the permitted development rights, local authorities will have the power to take away those permitted development rights. They can do that by imposing conditions or obligations on the grant of permission which restricts the flexibility otherwise available. They can also do it by passing what are called Article 4 Directions which would move the availability of those permitted development rights within a defined area. There are also, of course, other things outside of the planning regime that will need to be looked at, if you have a tenant or a borrower who is looking to take advantage of that flexibility they will still need to look at what the permitted user clause within the leases, they’ll also need to look at whether there’s any restriction on that flexibility in the loan documentation that they may have. So whilst Planning might allow those changes, it may be the case that other instruments will remove it. So, I think that that’s something that will need to be looked at, but broadly speaking, I think flexibility is going to be available.

Simon Sharp

Well that’s sort of positive. I mean, maybe just briefly as well, before we move onto the white paper, we’ll just sort of look at, how these changes are being received? I guess that’s sort of been commentators but also owners and local authorities will have views on this. So, what have people been saying?

Tim Smith                     

As you might expect, a mixed bag of comments. Owners have broadly welcomed the changes, all those within the F&B sector have queried why the flexibility seems to have been reduced for pubs and takeaways, in a manner that wasn’t obvious that it would need to be. Local authorities have said that the Use Classes Order changes could undermine policies that they have curated for some time on town center first, that they either protect against the loss of office floor space or against the loss of retail floor space, and they could now find those polices undermined because they no longer have the direct control over changes because the Use Classes Order extends flexibility. Some amenity groups have said that the permitted development rights in particular could be a charter for poor design and there is quite a bit of small print, as we’ve said earlier, in how the permitted development rights for new build and extensions will operate but nevertheless as soon as one liberalises to a permitted development right, the ability to build new floor space, then there are fewer controls and fewer design standards that are able to be applied by local authorities. So a mixed bag of comments, but I think the target audience for these changes, which is the property sector, has broadly welcomed them.

Simon Sharp                 

1. Good. Well, I’m quite conscious of the time, so let’s move on and have a discussion about the white paper, I ought to give it its official title, Planning for the Future.

So it was intended to be published in spring of this year, but it’s only come out in the last month while the Government prioritised, probably understandably, the pandemic, but in the run up to this, we’ve heard some quite bold ideas, there was the January report on, entitled Rethinking the Planning System for the 21^st Century, which the Policy Exchange think tank published and now that’s kind of interesting because it’s sort of had the bold idea of two use classes really, one sort of prohibiting development and one encouraging it and permitting it, instead of multitude and zoning areas, and it’s interesting because some of the contributors to that report have been appointed on the Government’s expert panel advising on planning reform and feeding into this white paper. So I suppose the opening question on this is, how bold, how wide-reaching, how ambitious are the proposals in the white paper now that we’ve got it front of us?

Tim Smith                     

Well, firstly call me a cynic, and there are delegates who are registered for this who have called me a cynic in the past when I’ve been working with them, which says that it’s not unusual for a Government to promise fundamental reform and the reality is often very different from that, what’s curious about this white paper is that it’s unusual in expressing a number of alternatives within it, as to how the changes could take effect so, even with the proposals that we see written down, there’s still no absolute clarity as to which of one or more alternatives the Government is actually standing behind so, to that extent, it’s perhaps more a green paper than a white paper. But the things which have captured the headlines have been around the reforms which are proposed to local planning documents. They are criticised for taking too long to go from start to finish, and so there are a number of reforms proposed which will help to speed up that part of the process. Also, proposals for speeding up the way in which planning applications are administered, a suggestion even of standard forms of documentation that will be used to support planning applications and reforms to consultation, leading overall to a speeding up in the grant of planning permission from applications being submitted, and also some changes to the way in which infrastructure is funded. We already have the Community Infrastructure Levy, we also have, sitting alongside that, Section 106 obligations, and the proposal is that an Infrastructure Levy will be created as an amalgam between the two, which would offset the need for Section 106 negotiations.

The thing which has perhaps captured the most imagination has been the proposals which you’ve alluded to there, Simon, for introducing zoning into the UK. Now zoning, from talking to colleagues of mine who practice in New York, in our New York office, has been in currency in New York City since 1961, they do caution about “careful what you wish for” because if the intention behind introducing zoning into this country, where we have presumptions in favour of the grant of permission, or maybe even the grant of permission in principle, for certain types of uses, if the intention is that that simplifies the process, then what my colleagues point out is that the zoning code in New York currently runs to 1500 pages, so that doesn’t sound as though it’s going to altogether assist with the simplification of it. But nevertheless it’s interesting to be talking about that.

We have three zones which are proposed, we have types of zones, a growth zone, in which they are reckoned to be suitable for development and therefore automatic outline planning permission would be granted upon adoption of the local plan, we have renewal zones, which are broadly suitable for development and where there would be a statutory presumption in favour of the grant of planning permission, leading to faster approvals for uses which are generally reckoned to be suitable for an area and then the reverse of that, which is protected areas, which would be protecting against development in zones like areas of outstanding natural beauty, those with affect heritage buildings, those in the green belt and triple their size. So, on paper, it looks like it could be a good thing. My skepticism about this proposal is, how complex it then makes the local planning process, which they’re also intending to try and simplify when there’s so much at stake by the area in which your property sits and how it is zoned. I think that could lead to complications and no doubt more legal challenges would be spawned following the adoption of local plans. We can’t really do justice I think in the time available for following the proposals within the white paper, but ...

Simon Sharp                 

No we can’t

Tim Smith                     

... Maybe something that we return to.

Simon Sharp                 

Yeah, I mean, just to touch on the broad concepts, are we kind of keeping local plans at the heart of things, in the new proposals rather than, sort of, moving away from localism, and having a sort of more centrally developed and deployed strategy of local plans... presumably remaining important, but, are they going to be able hoard them some way, to kind of side-step the criticism they’ve had.

Tim Smith                     

I think nowhere is localism formally abandoned, although localism was part of the orthodoxy of the coalition Government, and so Boris Johnson wouldn’t necessarily feel as though he needs to be tied to it. I’m personally skeptical as to how local localism was in the first place. I’m reminded of something Sir Humphrey used to say in Yes Minister, which is “always deal with a difficult bit in the title ’cause that’s where it does the least damage”, I mean the truth is that the Localism Act still had a good degree of centralist power in there.

What the white paper is proposing, though, is a departure from localism. We’re seeing a return, a proposed return to top-down housing targets being introduced, and also criteria-based policies, which makes up the bulk of, most local plans would be deleted from local plans with reliance instead on the National Planning Policy Framework. So again, you can see central local Government divides through the policies in the National Planning Policy Framework. Neighborhood plans are retained, though. Neighborhood plans were possibly the thing that local communities, the banner that they flocked around, when localism was being introduced, I’m not sure that local communities really understood what the purpose of the neighborhood plans were, I certainly saw various flyers from neighborhood groups, which said here is our opportunity to resist development, and that was never the purpose of neighborhood plans. It was more about just putting a local flavour on development allocations, so with that caveat on neighborhood plans, yes they will remain, but I think a good deal more power and responsibility would be vested in central Government if these proposals then all came forward.

Simon Sharp                 

I mean I’m very conscious of the time, so maybe this is the final point, thus we discuss very briefly is the Infrastructure Levy, and whether we’re looking at a revolutionary or revolution of the current [inaudible] regime in the affordable housing market delivered.

Tim Smith                     

Yes, so one of the criticisms of the Community Infrastructure Levy when it was introduced in 2010 is that it was unable to deal with the provision of affordable housing and that provided probably the main reason why Section 106 negotiations had to be retained in parallel. In principle, the new Infrastructure Levy proposes a means for dealing with affordable housing, which isn’t through Section 106. Developers will still be allowed to deliver on affordable housing requirements by provision in-kind, so it would still be able to develop their own affordable housing, but for levies which are collected, affordable housing will be a permissible outlet for that money to be spent. Now, whether or not that achieves the kind of through-put on new homes and affordable housing in particular, which is the stated aim of every Government proposal, remains to be seen. But, I think so far as many developers are concerned, if it truly does see the end to lengthy and complex Section 106 negotiations, then they won’t exactly lament its passing.

Simon Sharp                 

Yeah. Fair enough.

OK, well Tim, thank you very much for that. Given the timing, I think we’re going to have to leave it there for this session. We can always have further sessions on the white paper as discussions continue. And, apologies to everyone for running over slightly and that we won’t be able to get round to answering your questions live. But, I suppose, it’s always good to leave the audience with it wanting more. Hopefully we’ve done that.

Thank you all for listening in this morning, we hope you’ll be able to join us for our next REF webinar which is on Logistics, in the coming weeks. And, but for now, thank you for joining, and we’ll speak soon.

Tim Smith

Thank you very much.