Tightening of HMO rules presents an opportunity for planning compensation claims by developers who have incurred additional costs and losses as a result of the changes.
A flurry of Article 4 directions have been introduced by Local Planning Authorities (LPAs) across the country, removing the permitted development rights for changing residential dwellings into houses of multiple occupancy (HMOs) forcing HMO developers to apply for planning permission.
These changes also kick started a 12-month timer for developers’ schemes impacted by the decision to make applications for planning permission should they wish to retain the opportunity to make a compensation claim. Upon a refusal of a planning application (or certain conditioned planning permissions), a claim for compensation can be submitted within 12 months of the LPA decision on the planning application.
Ros Trotman, Partner in Thrings’ Planning and Environment team, looks at the impact of immediate directions and why it is vital such developers assess whether they are entitled to compensation.
What changes under an Article 4 direction?
Provided it falls within permitted development rights, converting a home (Class C3) into a HMO (Class C4) can be done without a full planning application.
If, however, an LPA introduces an Article 4 direction removing these particular permitted development rights, then planning permission would be required for any such change. In many cases, the directions have taken effect immediately or without the usual 12 month notice which means:
- No/minimal grace period for new schemes;
- No ability to rely on permitted development rights from the date the direction took effect;
- All new C3 to C4 conversions require a planning application.
Many LPAs are either considering or have already introduced similar measures, often citing concerns about housing mix, anti-social behaviour and pressure on local services.
Why this matters for developers
For established and emerging HMO developers and investors, the removal of permitted development rights introduces greater risk and uncertainty, exposing them to:
- The time and cost of preparing and submitting a planning application;
- The risk of refusal;
- The possibility of conditions that restrict how the property can be used.
In practical terms, schemes that previously worked on a straightforward permitted development basis now require a more detailed planning strategy from the outset and will inevitably involve the risk of not being able to deliver the HMO scheme envisaged.
A potential route to compensation
What is less widely known is that there may be a route to compensation in certain circumstances.
Where an immediate Article 4 direction removes permitted development rights without prior notice, or otherwise a non-immediate Article 4 direction gives less than 12 months (and no more than two years) notice, then a party with an interest in the property (a freeholder or leaseholder) may be entitled to claim compensation if:
- Planning permission is refused; or
- Planning permission is granted subject to conditions that restrict development in a way that would not have applied under permitted development rights.
There is, however, a strict 12-month window from the date the direction comes into force to make an application for planning permission, and thereafter a 12-month window to make a compensation claim from the date of the refusal (or conditioned approval). For more information on the time limits related to schemes in your area, please get in touch with our Planning and Environment team.
Developers with schemes affected by Article 4 directions should be reviewing their position now. Acting early is key as waiting could mean missing the opportunity to recover losses.
You may have grounds to explore a claim if you have:
- Exchanged contracts on a property intended for HMO conversion;
- Incurred professional fees in reliance on permitted development rights; or
- Suffered a reduction in the value of your property due to refusal or restrictive conditions.
Each case will turn on its facts, including timing, evidence of loss and the detail of the council’s decision-making. Getting early legal advice can make a real difference to preserving and presenting a claim properly.
For new HMOs in areas where Article 4 Directions have recently been introduced
For those HMO developers who may have substantially completed their change of use to a HMO use under permitted development rights at the time the Article 4 Direction took effect, there may well be an argument that the HMO does not require a planning permission.
Ros Trotman, Partner in Thrings’ Planning and Environment team, said: “We are continuing to see a surge of developers and investors across the country being impacted by Article 4 directions, setting back their plans to deliver new HMOs.
“Immediate Article 4 directions and non-immediate directions which have not given the usual 12-month notice can have a real commercial impact for HMO developers and investors, particularly where acquisitions, funding arrangements or professional appointments have already been put in place on the basis of previously available permitted development rights.
“Diminution in value can be significant if planning permission is not secured. The key is to act promptly and seek advice on next steps and an appropriate planning strategy as soon as possible.
“Understanding your rights – and acting within the requisite timeframes – is essential and our team are on hand to help you protect your position. This means assessing whether a claim may be possible and if so, advising you on what losses may be recoverable and what evidence is required in order to engage with the LPA on your behalf.”
Thrings’ Planning and Environment lawyers have extensive experience in navigating complex local and national planning policy legislation and has successfully supported developers and local authorities through the approval, appeal and compensation processes. To find out more and for advice on your development proposals, please do get in touch.
