What You Need To Know about Serviced Accommodation and Planning Law
In the fifth of our series on serviced accommodation, Rob and Paul look at UK planning law. In their discussion, they cover everything from finance to planning guidelines to licensing and examine where the serviced model fits in when compared with other types of buy-to-let or rental investment.
Serviced Accommodation and Planning Law
Rob: Hi, it's Rob from Property Investments UK, and in today's video, we're going to be looking at serviced accommodation and planning law, and effectively, the things you need to consider and know as to make sure that your property or serviced accommodation is doing the right things.
So because serviced accommodation is quite a new industry, I guess, in the respect of a straightforward residential property being used for other things than just a 6 month, 12-month tenancy. It's important to consider, I guess when serviced accommodation when we're looking at, when you guys specifically as well, finding sites that you think work from a lettings viewpoint. Planning, finance, licensing, in terms of the actual building and stuff are all things to consider, isn't it?
So from a planning perspective, people might not be aware of what an existing residential property might be, I guess, in planning definition compared to what a hotel or something else might be. So where does serviced fit, so I guess, within that planning kind of aspect?
Paul: As it stands now - without going into too much detail - basically it all comes down to the lease and the developer that supplies the lease, as well.
Now, obviously, if a developer has got a vested interest in the management of the building they built-
Paul: They're not willing to put a serviced model on it, so effectively you can't do anything with it because you're going to be tied into that particular management company.
If you're using it as a buy to let... So, when we source, basically we can only - well apart from the obvious of location, specification. We can only market it when the developer has agreed that we can run this model on it.
And also when the developer has got no vested interest in marketing it for themselves.
Rob: Yeah, so in this particular building, it's a straightforward apartment building in Manchester, for example. When this was being built, the freeholder, the management company would have had a leased structure within that particular property. And you make sure that those properties allow for this type of tenant.
Paul: Yes. Yeah, absolutely.
Rob: And then separately to that, there is a planning guideline as to what each individual apartment or the building would be.
So residential, for example, will be classed as C3. So a straightforward apartment, rent out to a normal tenant profile, C3. Hotels, bed and breakfasts they're going to be a different classification, you will find them as C1. There is currently no classification, is there, for serviced?
Paul: For serviced, no.
Rob: That kind of fits within the middle and only a few years ago they changed classification specifically for HMOs-
Rob: - As well, to give them their own classification. So, there may be a case in the future where serviced creates its own classification from a planning aspect. But as we kind of talk now, as we look at apartments and developments now, effectively it's a straightforward residential apartment, isn't it?
Rob: So it fits within that classification.
Paul: I think we do think there is going to be a timeframe on it though, not only in terms of a change of classification but also because of how the market is going with property prices and the rental market now booming.
We are seeing, and quite rightly I guess, is that developers now want a piece of the rental action as well.
They're very keen to set up a sister company by the side of it so, you know, they develop and then they manage.
So I think it will become limited down the line, you know, they might be old specific apartments that you own that you could do.
But obviously, there is a lot of work involved with it as well. So we are trying to, I suppose, fill what we need as quickly as we can.
Because I think maybe two or three years down the line the options will be less limited for them.
Rob: I think it's also just where the current planning system is. Each area isn't necessarily impacted the same. So, for example, HMOs, when you look at certain council areas, they've got more HMOs than they maybe want-
Rob: Or need. So they put in restrictions or limitations in that particular area for new properties. I think that will probably come to something similar within some of those cities. So larger cities, New York, Berlin, have brought in things that restrict serviced accommodation or short-term stays.
There is something kind of similar happening in London, but not yet in other cities around the UK. So I think where it is potentially going, obviously, nobody knows where it's going to be in five, 10 years time or so.
Rob: But where we are currently seeing at the moment, the market is prime for this kind of structure and as long as you buy in the right building and the lease allows you to do that type of rental then-
Paul: Which is where we are, do our due diligence.You know, at the end of the day, we can't market anything that is offering a serviced model if we hadn't done our due diligence.
The last thing we would ever want is someone to say, "All right. Okay, here we go, let's go. We've just looked at the lease, we can't do it."
And that's why it does go on everything. A, everything might not fit any other criteria in terms of location, but B, sometimes you're just not allowed to do it, simple as that.
So we just try and find the best ones and we now try and work with the developers who are just wanting to develop.
The old school developers who, right develop, move on. You know, we can look after the rest of it. Yeah, and I even think that with hotels et cetera, or people developing with hotels in mind, they are now looking a little bit down the shorter term serviced model.
You know in Manchester itself, there is a few serviced blocks but they are aimed at the shorter model.
You know, not as much the home from home. So, yeah, I just think the time is really good now.
To get involved with it, because like I said, we can't predict what's going to happen in the future.
But hopefully, we've got a good window of time on it.
Rob: Yeah, and it makes sense, like, with the planning aspects because there are things to consider, not just planning, but also as we said, like the lease in the building, finance, all that kind of stuff. If you're sourcing your own property you can, there's a lot of due diligence you need to do in terms of making sure this development is kind of right.
Paul: Yeah, absolutely.
Rob: If you provide serviced accommodation or it is you want to look at, it's not as simple as just saying, "Oh, there's an apartment here or a house here that looks like it's in a good location." There's a lot more due diligence to kind of look into. So-
Paul: And there are a tonne of costs involved with it. I mean, it's like I say we've got the structure in place where we deal with it all, it's not just as simple. You can do it if you've if it's your full-time job look after properties, great. You can go to an apartment, check out ways it's done but then, to get all your contacts in place et cetera and look after it all.
Rob: Yeah. You're setting up a mini-business in effect, aren't you? If you're doing that for one property it's a lot of work.
Paul: Yeah, it's a lot of work. Yeah, absolutely.
Rob: Yeah, it makes sense to kind of tie-in that structure that works then. Yeah. I hope that gives you some kind of guidance in terms of where the planning structure is at the moment with these types of properties, and where they kind of fit into the mix of what you can consider as buy to let or rental investments.