March 14th, 2023.
Commercial Property Use Classes & Obtaining the Funding for Purchase
When it comes to land and buildings, there’s a set of rules and regulations which dictate how they can be used. The different classes of use are categorised, rather helpfully, by what are called ‘use classes’ – use classes determine the type of work or process that is legally able to occur in a particular building, on a particular piece of land.
There was a significant overhaul of the commercial property use classes on September 1st, 2020. Before then, the classes were segmented by the 1987 Town & County Planning Use Classes order, in four classes from A-D. As of 2020, the reform has introduced the new E, F.1 and F.2 classes.
The main takeaway for developers and landlords alike, is that if you are repurposing a space that still lies in same classification as before, you may not need planning permission. You should, of course, officially check this before making drastic changes to your premises!
Below is a comprehensive breakdown of each of the commercial property use classes, which use a letter, followed by numbers for the further sub-categories.
CLASS E – COMMERCIAL, BUSINESS AND SERVICE
Use, or part use, for all or any of the following purposes—
(a) for the display or retail sale of goods, other than hot food, principally to visiting members of the public,
(b) for the sale of food and drink principally to visiting members of the public where consumption of that food and drink is mostly undertaken on the premises,
(c) for the provision of the following kinds of services principally to visiting members of the public—
(i) financial services,
(ii) professional services (other than health or medical services), or
(iii) any other services which it is appropriate to provide in a commercial, business or service locality,
(d) for indoor sport, recreation or fitness, not involving motorised vehicles or firearms, principally to visiting members of the public,
(e) for the provision of medical or health services, principally to visiting members of the public, except the use of premises attached to the residence of the consultant or practitioner,
(f) for a creche, day nursery or day centre, not including a residential use, principally to visiting members of the public,
(g) for—
(i) an office to carry out any operational or administrative functions,
(ii) the research and development of products or processes, or
(iii) any industrial process,
being a use, which can be carried out in any residential area without detriment to the amenity of that area by reason of noise, vibration, smell, fumes, smoke, soot, ash, dust or grit.
CLASS F.1 – LEARNING AND NON-RESIDENTIAL INSTITUTIONS
Any use not including residential use—
(a) for the provision of education,
(b) for the display of works of art (otherwise than for sale or hire),
(c) as a museum,
(d) as a public library or public reading room,
(e) as a public hall or exhibition hall,
(f) for, or in connection with, public worship or religious instruction,
(g) as a law court.
CLASS F.2 – LOCAL COMMUNITY
Use as—
(a) a shop mostly selling essential goods, including food, to visiting members of the public in circumstances where—
(i) the shop’s premises cover an area not more than 280 metres square, and
(ii) there is no other such facility within 1000 metre radius of the shop’s location,
(b) a hall or meeting place for the principal use of the local community,
(c) an area or place for outdoor sport or recreation, not involving motorised vehicles or firearms,
(d) an indoor or outdoor swimming pool or skating rink.”.
CLASS B2 – GENERAL INDUSTRIAL
B2: General industrial refers to space being used for industrial processes that don’t fall into class E. These spaces cannot be used for chemical treatment, incineration, hazardous waste or landfill.
CLASS B8 – STORAGE OR DISTRIBUTION
B8: This relates to any kind of distribution or storage facility, including ‘open air’ storage. This may also include warehouses.
SUI GENERIS
Sui generis’ is Latin for ‘in a class of its own’. Certain uses are specifically defined and excluded from classification by legislation, so they fall into this list. It includes:
Theatres.
Houses in multiple paying occupation.
Hostels providing no significant element of care.
Scrap yards.
Petrol filling stations and shops selling and / or displaying motor vehicles.
Retail warehouse clubs.
Nightclubs.
Launderettes.
Dry cleaners.
Taxi businesses.
Amusement centres.
Casinos.
Data Centres
Land
There are a few types of basic classification when it comes to land real estate:
Agricultural land or Greenfield land
Much like the name suggests, this is farm, ranches or pasture land which has not yet seen any commercial development use.
Infill land
This land is found in an urban environment, dedicated to the development and construction of new commercial facilities.
Brownfield land
This type of land has been previously used for commercial or industrial use and is often environmentally unstable. With the correct renovation and protocols, however, it can be an ideal source for affordable commercial development.
(Source: https://www.legislation.gov.uk/uksi/2020/757/regulation/13)
How to obtain funding to purchase commercial properties
There are several reasons why you might look to purchase a commercial unit. The main focus with our clients is either as an investment, where a long-term mortgage would be the option, or an asset manage/planning play, where short-term/development funding would be required. The strategy to exit on a long-term mortgage is typically when tenants are in place, or for development finance, when planning is obtained.
Whatever the situation, there are multiple funders available in the market up to 70-75% LTV. In some cases, lenders will have a preference on certain asset classes depending on the client strategy, and in short-term lending, the risks/ability to exit their loan.
We specialise in providing advice to all situations for developers and landlords. Give us a call on 02080 579 178 or by submitting a call back request here.