Routes to repurposing across the globe

The way we use land and buildings is undergoing a seismic shift. From the need to support innovative new uses, to addressing the obsolescence of existing structures, this transformation is accelerating like never before. For those looking to rethink their approach to real estate, this dynamic landscape presents a wealth of opportunities and challenges. Delving into the experiences and insights from different jurisdictions uncovers striking similarities and some unique differences. England In England, for a number of years, the government has been trying to encourage conversions to residential property, by removing some of the legislative barriers which would otherwise exist to these changes. In particular “permitted development rights” grant blanket planning permission for a whole host of development which would otherwise require an individual planning consent. The PDRs permitting conversion of buildings to residential use have expanded significantly in recent years. This year alone, the cap on the maximum floorspace which can be converted from office to residential in one building has been removed, as has the vacancy requirement. Previously, before being able to rely on these rights, your property had to be empty for at least three months, to ensure that viable, vibrant uses were not being terminated to facilitate the switch to potentially higher value residential use. Now there’s no such need to prove that the property has sat empty. US Over recent decades, numerous cities have provided support and subsidies for office-to-residential conversion – post 9/11, zoning and financial incentives allowed for the conversion of 20m sq ft of office space. Similarly, Los Angeles and Philadelphia relaxed parking requirements and offered tax abatements that collectively allowed for the creation of more than 12,000 housing units in LA and conversion of more than 8m sq ft of office space in Philadelphia. US cities offering tax incentives for conversions are also focusing on tax abatements, rather than direct public subsidies, so as to ensure that the public benefit outweighs the cost to government. Spain At the moment, there is a real trend in Spain towards simplifying the change of use of properties and making the process more flexible. This is paving the way for a significant increase in the conversion of office buildings to tertiary uses, such as exclusive lodging. This phenomenon responds to the growing demand for tourist accommodation and the need to repurpose buildings that have become obsolete. In the Madrid region, a new piece of law came into force in July 2024, allowing the transformation of offices into affordable rental housing. This aims to increase the supply of affordable housing and optimise the use and repurposing of underused office buildings. Meanwhile, in the Canary Islands, there is a decree which allows the conversion of offices into housing, although unlike Madrid, these new dwellings will not have specific protection. This decree aims to address the high demand for housing and repurpose disused office buildings, providing a solution to the shortage of available housing. In light of these developments, and to ensure a smooth and successful transition, let us explore some key legal factors that must be considered if repurposing in England and abroad. Making it work in practice When thinking of repurposing, you should review the title to the property early on. Key things to be aware of are: Use restrictions: Title restrictions on use are not uncommon, particularly in historic documents but also in newer, mixed-use schemes. Many of these restrictions will not be relevant unless a building is repurposed, so you may not be aware of them. Historic restrictions can usually be insured against, but other restrictions (particularly in a headlease) may need to be renegotiated. In both cases, addressing these issues early may avoid wasted design and other costs, and improve your negotiating position if you do have to negotiate third-party consent. Existing occupiers: To successfully work around existing occupiers, review the terms of their leases to understand the permissions and restrictions related to redevelopment. In England, for example, they will likely include safeguards such as maintaining access and fulfilling consultation requirements. If your repurposing plans require vacant possession, then you will need a strategy which may involve, depending on the jurisdiction, serving break notices and negotiating early exits. Easements: When examining the title, it is also beneficial to check whether any easements, such as a right to light, are being affected. If considered early on, often you can mitigate any constraints and potential objections, avoiding additional design fees later and potential delays. Change of use – how can you get it right? Whenever you are changing the use of a property or carrying out physical works, it is imperative to be clear on any planning, zoning and/or land-use requirements. In England, while planning permission is usually required for all material changes of use, there can still be a lot of flexibility for changes of use within a use class. For example, class E allows changes from retail to gyms, restaurants, or offices. Alternatively, PDRs (if available) provide blanket planning permissions for certain types of development, including many changes of use. There are, though, restrictions linked to some PDRs, including limits on the amount of floorspace which can be changed, and increasingly there needs to be some engagement with local planning authorities first. While in some cases this is simply a notification requirement, in others there is a “prior approval” process, requiring you to secure confirmation from the LPA that they are happy on a range of topics. Where there are no PDRs, and the use is one requiring consent, then it will be necessary to secure an individual planning permission to authorise use of the building, following an application to the LPA. Spain’s approach is region-specific. There are different administrative routes depending on the applicable regulations in each region of the country. The main methods are: (i) the planning licence, (ii) the so-called “responsible statement” or (iii) prior communication. A commonality in all three regimes, however, is approval from the local council. Construction considerations Before commencing any material construction works, an owner should consider which procurement method is most suitable. The suitability of each method will vary depending on the jurisdiction, and the particular type of project. In England, while there are considerable advantages for the owner in implementing design and build in terms of risk transfer, that risk transfer will attract a premium or material carve-out or assumptions from tenderers leading to challenges to the budget or uncertainty as to cost. Two-stage tendering is likely to produce better outcomes in terms of reducing the level of risk and consequent uncertainty for owners. For tenderers, a key area of concern will be the risk of the existing structure and other pre-existing elements of the premises. To address this and avoid significant uncertainty around cost and programme, owners should undertake detailed surveys of the premises. These, when shared with tenderers, will set a baseline of information to be aware of in agreeing their contract sums and completion dates. When considering repurposing through office-to-residential conversions in the US, there are certain challenges. For example, construction costs and regulations on residential construction tend to limit conversion to smaller, older office properties, whose floorplates make for an easier conversion, especially in markets with either high multi-family demand or government incentives aimed at preservation and restoration. Finance Before carrying out a new project, awareness of financing arrangements and requirements is essential. If the property is secured, lender consent may be required for any change of use and resultant works. In an environment where refinancing and, indeed, complying with existing covenants is challenging, repurposing the property may be the key change necessary to unlock liquidity and avoiding enforcement by the lender. The bigger picture While there are undoubtedly some legal issues to consider when exploring the repurposing of buildings, there are also real opportunities. Success hinges on early, strategic navigation of legal, practical, and financial hurdles. By embracing these shifts and leveraging best practices, you can breathe new life and value into your assets – that meet today’s demands, and shape tomorrow’s landscapes. Hannah Quarterman is a partner and head of planning, Gillian Thomas is a partner and David Horan is a senior associate at Hogan Lovells International LLP