Commercial to Residential Freeholder Consent Premium

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  • Commercial to Residential Freeholder Consent Premium

    We recently got planning persmission to change the upper floor of our small commerial unit into a residential unit that we hold on a 125 year lease. We got in contact with the freeholder to request permission to change the use and they came back with a requested premium of £20k for him to give consent.

    We felt that was very expensive and chats with other people felt likewise, however he is not willing to change that amount. There does not seem to be any arbitration for commercial negotiations in this case and appears that if we do not pay his asking premium we cannot use the space as residential?

    Does anyone know any next steps that we should consider? It says consent should not be "unreasonably held" but while the freeholder has been reasonably quick to respond (via fax and letter only) we do think the price is fair. however i also do not really have any guidance what is the premium for and how they work out the value. On top of this we probably have many thousands of legal bills etc. However the freeholder appears to have all the cards and while residential there is more ways to get addressed (leasehold tribinal) there appears nothing for commercial.

    Any ideas what we can do next would be gratefully received.

  • #2
    What does the user clause state in relation to landlords consent within your long lease?

    Also what was on the ground floor as you may not have required planning permission?
    [I]The opinions I give are simply my opinions and interpretations of what I have learnt, in numerous years as a property professional, I would not rely upon them without consulting with a paid advisor and providing them with all the relevant facts[I]

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    • #3
      No consent to which you refer is very unlikely to be in any clause relating to user, just alterations. While alterations are inevitably involved, the leases restriction what you can use it as, no matter the planning consent you might obtain or might not need.

      As to the premium you must understand that you and the LL entered into a lease defining a particular use and he is under no obligation to agree.

      To the extent that they may, or the lease as suggested is so broad or ill defined that it may not preclude such use, or does so subject to consent, as well as requiring consent for the alterations, there is a control that the landlords can seek a reasonable premium to reflect any damage to their reversion.

      back to basics what does your lease say about what your premises are and are there any reference to use as JB asks?
      Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

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      • #4
        The only reference in the whole lease relating to permitted use is simply

        "not to use the property save as permitted in accordance with the planning acts"

        we now have residential planning so we are still.

        there is no user clause stating in relation to the landlords consent but perhaps you could explain more if i have missed something. the lease reads very much like a residential lease.

        the ground floor is a b1 office. The upstairs was also classified as b1 so inorder to change its use we need to get planning from the council, which we now have.

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        • #5
          The reversion should have considerably increased in value as rather than a empty commercial unit that was empty or 7 years he will one day have 2 residential flats and small office.

          the lease mentions no alterations without consent but that is to be expected and since the unit was a shell it needs basic fitting out for any useful function. The lease looks very residential and i think because all other flats in the building above are residential they might well have used a residential lease. there is nothing in the lease to say what the premises should be used for, only that it complies with planning act.

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          • #6
            In the initial interpretation section does it have a description of "Planning Acts"?
            [I]The opinions I give are simply my opinions and interpretations of what I have learnt, in numerous years as a property professional, I would not rely upon them without consulting with a paid advisor and providing them with all the relevant facts[I]

            Comment

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