The term commercial property applies to any building used for business purposes, whereas residential applies to property used for people to live in.
Residential buy-to-let was long seen to be a reliable investment strategy, but with the market becoming tougher in recent years investors are diversifying their portfolios to remain profitable. Purchasing commercial premises to convert to residential is proving to be a popular investment strategy, with an increasing amount savvy investors seeing it as a desirable option.
Why purchase a commercial property for conversion?
With many business owners abandoning traditional commercial premises the market has become saturated, meaning values of commercial property tend to be lower than residential. As the commercial properties are often left vacant the landlord is not earning from it and is more willing to sell at a lower price.
There is the added benefit of commercial Stamp Duty Land Tax rates being lower than residential. You also avoid the extra 3% in SDLT that you have to pay if you are purchasing an additional residential property.
You can also save money in VAT by developing a commercial premises. In developing a residential property, VAT would be chargeable at the standard rate of 20%. However, the reduced VAT rate of 5% could be applied to both labour and materials when converting a commercial premises into residential.
Do I need planning permission?
Development does not in all instances require a planning application to be made for permission to carry out a development. The government has a scheme in place to allow certain change of uses to be carried out without the need for planning permission, known as permitted development rights. Permitted development rights are much less hassle to utilise than going through the planning permission process.
Temporary permitted development rights currently apply in respect of the change of use of premises from a B1(a) office use to C3 residential use and they also usually apply to convert agricultural buildings to residential. You would need to obtain Prior Approval from the Local Authority who will assess the impact of the development on the surrounding area and its occupiers.
Even in circumstances that planning permission is required, you are likely to be granted it as the Government’s National Planning Policy Framework makes the reuse of empty buildings a priority.
What are the downsides?
Initially, it can be much more complicated and costly than purchasing an existing residential property. You will need a specialist building survey on the structure of the commercial property before any conversion can be carried out. Raising finance can be more difficult and you will often need development finance rather than a routine residential buy-to-let mortgage.
Will I need legal advice?
When expanding your real estate portfolio having an experienced commercial property solicitor guiding you through the process is key.
We work with property owners and property developers who have a wide range of property portfolios. We also have the benefit of specialist planning lawyers should you need to make any planning applications.
Please contact Tom Marshall if you are looking to instruct a solicitor to assist you with purchasing a commercial property.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.