What Are Permitted Development Rights?
**Permitted development (PD) rights** allow certain types of building work and changes of use to be carried out without the need for a full planning application. For property developers, the most significant PD right is the ability to convert commercial buildings into residential dwellings under **Class MA** of the General Permitted Development Order (GPDO).
This route has created a substantial market for developers who acquire redundant office buildings, light industrial units, and other commercial premises and convert them into flats for sale or rent. The reduced planning burden, faster timescales, and lower risk compared to ground-up construction make permitted development conversions an attractive proposition.
However, financing PD conversions requires specialist [development finance](/services/development-finance) structured for the unique characteristics of conversion projects.
Class MA: Commercial to Residential
What Class MA Permits
Since August 2021, **Class MA** of the GPDO permits the change of use from **Class E** (commercial, business and service) to **Class C3** (dwellinghouses). This covers:
- Offices (former B1a)
- Retail (former A1, A2, A3)
- Light industrial (former B1c)
- Gyms and indoor recreation (former D2)
- Medical centres (former D1)
Key Conditions
Class MA is subject to important conditions:
- The building must have been in Class E use for at least 2 continuous years before the application
- The building must have been vacant for at least 3 continuous months before the application
- The floor space must not exceed 1,500 square metres (though this limit was removed in some recent amendments - check current legislation)
- The building must not be in a conservation area, listed, or subject to other designations (unless the local planning authority has not withdrawn PD rights)
- The local authority has not made an Article 4 Direction removing PD rights in that area
Prior Approval
Although full planning permission is not required, most PD conversions need **prior approval** from the local planning authority. The authority assesses:
- Transport and highways impact
- Contamination and flooding risk
- Noise from commercial premises
- Natural light to all habitable rooms
- Impact on the provision of commercial services in the area
- Fire safety (for buildings above 18m)
Prior approval is typically determined within **56 days** of a valid application, significantly faster than a full planning application.
**Key Takeaway:** Prior approval is not a rubber stamp. The natural light requirement is particularly important - buildings with deep floor plates or limited window openings may struggle to achieve adequate light to all habitable rooms.
How Lenders View Permitted Development Conversions
Lenders generally view PD conversions favourably compared to [ground-up developments](/knowledge-hub/ground-up-development-finance-new-build) because:
- Reduced planning risk - prior approval is simpler and faster than full planning
- Existing structure - the building provides collateral from day one
- Shorter build programme - conversions typically complete faster than new build
- Lower build costs - reusing an existing structure reduces construction costs
- Proven concept - thousands of PD conversions have been completed successfully
However, lenders also recognise the specific risks:
- Structural unknowns - older buildings may have hidden defects
- Asbestos - common in commercial buildings built before 2000
- Building regulations compliance - PD conversions must still meet Part B (fire safety), Part E (sound insulation), Part L (energy efficiency), and other regulations
- End values - converted flats may sell for less than purpose-built new build equivalents
- Communal areas - the quality of shared spaces affects values and saleability
Typical Lending Parameters
| Parameter | PD Conversion Range |
|---|---|
| LTGDV | 60-70% |
| LTC | 80-90% |
| Purchase LTV | 65-75% |
| Build cost funding | Up to 100% |
| Term | 9-18 months |
| Interest | 7-11% pa |
| Arrangement fee | 1-2% |
GDV Assessment for Converted Flats
Valuing converted flats requires careful consideration. The [GDV assessment](/knowledge-hub/gross-development-value-lender-assessment) should reflect:
Comparable Evidence Selection
Valuers use comparable sales from:
- Other PD conversions in the area - the most relevant evidence
- Purpose-built new build flats - adjusted downwards if converted units are inferior
- Second-hand flats - with new build and conversion premium adjustments
Factors Affecting Converted Flat Values
- Ceiling height - offices typically have higher ceilings (2.7-3.0m) than residential norms (2.4m), which can be a selling point or allow mezzanine floors
- Window sizes and natural light - large office windows are desirable; small or north-facing windows reduce values
- Floor plate depth - deep floor plates may result in internal rooms with no natural light
- Communal areas - the quality of entrance, hallways, and shared spaces
- Car parking - particularly important for suburban conversions
- Outdoor space - balconies and communal gardens add value
- Sound insulation - poor sound insulation between units is a common complaint
- Building appearance - an obviously commercial exterior can deter residential buyers
**Key Takeaway:** Converted flats typically sell at a 5-15% discount to comparable purpose-built new build. However, lower acquisition and build costs mean the profit margin can be as good or better than a new build scheme.
Build Costs for PD Conversions
Typical Cost Ranges
| Scope | Cost per sq ft (approx) |
|---|---|
| Light conversion (cosmetic) | £40-£70 |
| Standard conversion (new M&E, kitchens, bathrooms) | £70-£120 |
| Substantial conversion (structural alterations) | £100-£160 |
| Full strip and refit | £120-£180+ |
Key Cost Items
- Asbestos removal - survey and removal can cost £10,000-£100,000+ depending on extent
- Structural alterations - new openings, floor strengthening, staircase modifications
- Mechanical and electrical - new heating, ventilation, electrical distribution
- Fire safety - compartmentation, detection systems, emergency lighting, sprinklers
- Sound insulation - floor and wall treatments to meet Part E
- Kitchens and bathrooms - new installations for each unit
- External works - windows, cladding, entrance, landscaping
- Communal areas - entrance lobby, corridors, bin and bike storage
Hidden Cost Risks
PD conversions carry specific cost risks that should be reflected in your contingency:
- Structural defects discovered during strip-out
- Asbestos in unexpected locations (behind walls, in floor tiles, pipe insulation)
- Drainage - adapting commercial drainage for multiple residential bathrooms and kitchens
- Service connections - commercial buildings may have shared or inadequate utility supplies
- Building control requirements - additional work to meet residential building regulations
A contingency of **10-15%** is recommended for PD conversions, higher than the 5-10% typical for new build.
The PD Conversion Process: Step by Step
Step 1: Identify a Suitable Building
Look for buildings with:
- Good natural light (ideally windows on multiple sides)
- Regular floor plate allowing efficient residential layouts
- Adequate ceiling heights (minimum 2.4m finished, ideally 2.6m+)
- Structural condition suitable for conversion
- Location with residential demand
- No Article 4 Direction removing PD rights
Step 2: Feasibility Assessment
Before committing to a purchase:
- Commission an architect's feasibility study to test residential layouts
- Obtain a building survey to assess structural condition
- Commission an asbestos survey (essential for any pre-2000 commercial building)
- Research comparable evidence to estimate GDV
- Prepare a development appraisal including all costs and finance
- Use our development finance calculator to model the project economics
Step 3: Apply for Prior Approval
Submit a **prior approval application** to the local planning authority. This requires:
- Completed application form
- Existing and proposed floor plans
- Transport statement
- Contamination assessment (if required)
- Noise assessment (if near commercial premises)
- Flood risk assessment (if applicable)
- Natural light assessment
Determination within 56 days.
Step 4: Arrange Development Finance
Once prior approval is granted (or you have confidence in the outcome), arrange your [development finance](/services/development-finance). Working with a specialist broker ensures you access the most competitive terms. [Contact our team](/contact) to discuss your conversion project.
Step 5: Detailed Design and Building Regulations
Prepare detailed designs and submit a **building regulations application**. Key areas requiring compliance:
- Part B - fire safety (critical for conversions, especially upper floors)
- Part E - resistance to sound (between units and from external sources)
- Part L - conservation of fuel and power (energy efficiency)
- Part M - access (ground floor units may need level access)
- Part F - ventilation
Step 6: Construction
Proceed with the conversion, drawing down [staged finance](/knowledge-hub/development-finance-drawdowns-explained) as work progresses. Typical conversion stages:
- Strip-out and asbestos removal
- Structural alterations
- Mechanical and electrical first fix
- Partitions and fire compartmentation
- Second fix and finishes
- Communal areas and external works
- Practical completion and snagging
Step 7: Sale or Refinance
Market completed units for sale or refinance onto a long-term [commercial mortgage](/services/commercial-mortgages) or buy-to-let product if retaining for rental income.
Article 4 Directions: A Key Risk
**Article 4 Directions** allow local authorities to withdraw permitted development rights in specific areas. Several major cities have implemented Article 4 Directions covering PD conversions, including parts of London, Manchester, and Birmingham.
Before acquiring a building for PD conversion:
- Check the local authority's planning website for any Article 4 Directions
- Verify the direction covers the specific PD right you need
- Check when the direction comes into effect (some are proposed but not yet confirmed)
- Consider whether a full planning application would be feasible as an alternative
PD Conversions vs Full Planning Conversions
| Factor | PD (Prior Approval) | Full Planning |
|---|---|---|
| Timescale | 56 days | 8-13 weeks (potentially longer) |
| Cost | Lower application fee | Higher fees, more supporting documents |
| CIL liability | Usually exempt | May be liable |
| Affordable housing | Not required | May be required |
| Section 106 | Not applicable | May apply |
| Design scrutiny | Limited | Full design review |
| Conditions | Fewer conditions | Can impose wide-ranging conditions |
The exemption from affordable housing and CIL contributions can represent significant savings on larger schemes, making PD the preferred route where available.
**Key Takeaway:** PD rights offer significant advantages over full planning, but they are not available everywhere and do not remove the need for building regulations compliance. Always verify PD rights apply to your specific building and location before committing.
Lender Selection for PD Conversions
Lenders with strong appetite for PD conversion finance include:
- Specialist development lenders such as Shawbrook, Hampshire Trust, and Aldermore
- Challenger banks including Allica Bank and Recognise
- Development finance funds such as LendInvest and Redwood
- High street banks for larger, lower-risk schemes in strong locations
A specialist broker can match your specific project to the most suitable lender. Different lenders have varying appetites for unit count, location, borrower experience, and exit strategy.
Summary
Permitted development conversions offer an attractive route to residential development with reduced planning risk, faster timescales, and potentially strong profit margins. Success depends on selecting the right building, thorough due diligence (particularly asbestos and structural condition), realistic cost estimation, and a well-structured finance facility.
By understanding the PD process, managing the specific risks of conversion projects, and working with experienced professionals, you can deliver profitable residential schemes from redundant commercial buildings.
If you have identified a building for conversion and want to explore your finance options, [get in touch with our team](/contact) for a no-obligation discussion.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*