Advice zone

The impact of changes to the Use Classes Order

The upcoming changes to the Town and Country Planning Orders won't just make it harder for some operators to change the use of their premises, they will also have a major impact on rents and licence applications.
Many leases in the restaurant and pub business will state that when the rent payable under the lease is reviewed the premises must be assumed to be able to be used for any use within Class A3 of the Use Classes Order. The question will then arise as to whether that means Class A3 as it was (restaurant, cafŽ, hot food take-away, pub or bar) or Class A3 as it will be after 21 April when the changes take effect (ie, restaurant or cafŽ only).
A4 more valuable?
The result could have a fairly dramatic effect on the rent that would be payable after review and may even have the effect of reducing the likely increase. It is widely assumed by valuers that the new A4 use (pub or bar) will become a more valuable use, attracting higher rents per square foot than restaurant or cafŽ, partly because it might become more difficult to obtain planning permission for a new pub or bar.
If your lease states that any references to the Use Classes Order must be interpreted as the order was originally enacted, then there will usually be no change in the way that your premises would be valued on review. However, if the lease states that any references to the Use Classes Order must be interpreted in accordance with any variations made to them from time to time, then after 21 April the premises can only be valued on rent review as though they had the new A3 use (ie, restricted to restaurant or cafŽ).
As such, any comparable rents for pub or bar properties would have to be discounted - and that could well mean that the increase in your rent may not be as great as it would have been. As you probably have an "upwards-only" rent review, the rent would not actually go down, but it may not increase very much or, indeed, at all.
Landlord's agreement
Where the reference to the Use Classes Order is in its "varied" form, there will be a downside if you are thinking of changing the use of your business. The tenant's user covenant may well state that the landlord cannot unreasonably withhold consent to a change to any use within Class A3. But after 21 April not only will you need planning permission to change from A3 use to a pub, bar or hot food take-away, but your landlord could also withhold consent to such change or make its agreement to the change conditional upon your paying a capital sum or agreeing an increase in rent.
These changes in the Use Classes Order also have ramifications for the new licensing regime.
Under the Licensing Act 2003 everybody will need to make an application for a new Premises Licence. On the application form (which must be lodged by 6 August 2005) there is a box in which the applicant has to give a general description of their premises.
How you fill in this box may have implications for the future if you want to change the nature of your business. If you describe it in a way that makes it look more like a restaurant or cafŽ, then the local authority will be able to insist that you apply for planning permission before changing the operation to a pub or a bar. Conversely, if you describe it so that it appears to be a pub or a bar, then you may escape the need to obtain planning permission for changes in the future.
Descriptive nuances
Of course, you must not give false information on the form, but there may be nuances in the description that could tip the balance one way or the other.
Then again, there is a downside to describing yourself as a type of establishment which is used exclusively or primarily for the sale of alcohol. In such cases the initial fee for obtaining a Premises Licence and the fees for each annual renewal are subject to a multiplier of either two (where the rateable value exceeds £87,000) or three times (where it exceeds £125,000) as much as the figures that apply to other types of premises which require licences. For a large chain whose use is on the borderline between primarily food and primarily drink, the additional fees could be significant if their operations are described as primarily on the liquid side.
david.levy@blplaw.com