Using empty space

The problem

You are a restaurateur or shopkeeper. You own or rent a property in the high street but you use only the ground floor and basement for the purposes of your business. The upper floors are unused, unconverted, dirty and starting to deteriorate. They are costing you money in insurance premiums and rates.

You are worried about squatters, vermin infestation and (if you are a leaseholder) the costs of putting them in good condition at the end of your lease. You do not have the time, money or expertise to convert this space into flats for sale or rent.

How can you turn this drain on your resources into a money-making asset?

The solution

You may be able to let the space to a housing association, which will use grants and its own resources to convert the space into flats for local people, key workers, etc, under a temporary housing scheme.

You let the space to the housing association for a term of between six and 10 years, under a lease that gives the housing association no security of tenure. At the end of the term you get back vacant converted flats, which you can sell or rent.

During the term of the lease the housing association will be responsible for council tax, insurance and repair of the residential part, and for a fair proportion of costs common to both premises. It will also be obliged to hand back the premises in good repair at the end of the term.

The housing association is responsible for its tenants and for letting the flats. You will have no contact with the tenants.

Expert advice

It is absolutely essential that you obtain legal advice from a solicitor experienced in this field, especially if you are a leaseholder. Your solicitor must ensure that the agreement with the housing association obliges it to obtain all necessary planning and building consents for the works; to get your approval (and that of any superior landlord) to the plans; and to carry out the works in a good and workmanlike manner by an agreed date.

Your solicitor must ensure that the lease granted to the housing association creates no security of tenure, and requires it to keep the upper parts in good and substantial repair, and to hand them back to you in that condition - and vacant - at the end of the lease.

If you are a leaseholder, your solicitor must ensure that all relevant obligations on you contained in your lease will be passed on to the housing association, together with a fair proportion of insurance costs, service charge, liability for common parts, etc.

Your solicitor will also advise you whether (unusually) you need planning permission to use the upper part for residential purposes, and whether you require your own landlord's consent if your property is leasehold. If consent for change of use is required, the local planning authority's policies are likely to be such that this will present little difficulty.

Check list

\* The first thing you should do is telephone the empty homes officer in the housing department of your local authority. Ask whether it has a temporary homes scheme, and for names and contact details of participating experienced housing associations.

\* Get in contact with the housing associations and find out which one can offer you the best deal, which may well be the offer made by the most experienced housing association. These schemes are complicated, and you do not want to be on someone else's learning curve.

\* Instruct your solicitor.

Beware

\* The difficulty of creating a second separate access to the residential part can sometimes be prohibitively expensive, rendering the scheme unworkable for the housing association.

\* Grants available to housing associations differ from one local authority to another, so a scheme that is viable in one place may not be viable elsewhere.

\* Some housing associations have greater expertise than others in dealing with these schemes. You need to find an experienced housing association with an active temporary housing officer.

\* If your property is leasehold, you may need to obtain your landlord's consent to the subletting of the upper parts, the change of use and the carrying out of the conversion. A joint approach with an experienced housing association may be a good idea.

\* Do not expect a great deal of rent from the housing association. The amount will depend on the cost of the conversion works being carried out by the housing association and the length of the lease granted to it. Rent will therefore vary from something approaching a market rent (if little work is required) to zero.

\* Your agreement with the housing association will need to regulate how and when it carries out works so as to cause minimum disruption to your business.

Contact

Antonia Brandes
Fladgate Fielder Solicitors
020 7462 2208 (direct line)
abrandes@fladgate.com