Warehouse in breach of planning

[edd1e]

Hi all,

This is a bit detail heavy, so TL;DR: buying warehouse, in process found planning breach for industrial estate. What next ?

I am in the process of buying a small (800sqft) new build (completed end of 2024) warehouse through my limited company. The warehouse is £200k, £130k mortgage. So far, I'm about £12k down on valuation and legal fees for me and the lender. One of the conditions the bank requested was the discharge of a planning condition, namely the condition by the local planning authority that the building be built to BREEAM standard very good, and that the building shall not be occupied until the council have signed off on this. So far, so good.

We have been waiting for 2 months for this, and I learned yesterday that the reason we are still waiting is because the developer hasn't actually submitted anything to the LPA. Whilst this is irritating, it has further implications which is where I'd appreciate some advice.

In 2021, we bought a warehouse on the same development. We bought this with working capital, so no bank involved. Back then, we came up against the same condition:

The buildings hereby approved shall be constructed to BREEAM 'Very Good' Standard or an equivalent standard and prior to the use of the building the relevant certification shall be submitted to the Local Planning Authority confirming that the required standard has been achieved unless otherwise agreed in writing by the Local Planning Authority

The seller’s solicitor stated:

Your client is buying a shell and therefore the building is not sold as immediately useable. The BREEAM standards have been complied with, but sign-off takes a significant amount of time. My client is not willing to delay exchange of contracts, especially considering practical completion has been issued”. I think we can be happy that condition 4 has been complied with

We were aware of this and (naively) assumed that the BREEAM would follow at some stage after purchase so cracked on with kitting the warehouse out and never thought about it again, until yesterday. It turns out that the BREEAM certificate covers all of the warehouses on the development (the ones finished in 2021 and the newly completed ones from 2024) but has never been submitted, so all warehouses on the development are technically in breach of planning. The estate agent and the developer have a close relationship (estate agent manages the estate and charges management fees), so the estate agent is assuring me it's not a big deal as they comply with building regs so it's all ok etc, and other purchasers have 'taken a view on it'. Reading between the lines, I believe that the developer is reluctant to submit the certificate due to the costs involved, seeing as he's already sold the units. He has however retained ownership of 6 or so units to rent out, so he hasn't left the chat completely.

The industrial estate houses about 20-25 warehouses, all of which employ several people so it is unlikely that the council will come and shut them all down for breach of planning. However, I'm keen to know what the implications are for us as owners, and how serious it is to occupy a building that is in breach of planning. Is buildings insurance still valid ? Can I sell it ? Can I apply for the BREEAM certificate myself ? Does this fall into permitted development after (I believe) 12 years ?

The status of the purchase is that the bank will pay out on the building if I sign to agree I am happy to bear all risks associated with the BREEAM. This would our 4th warehouse across 3 businesses but I feel like I am in uncharted waters, so would appreciate guidance or advice from anyone who may know.

[hidetheelephants]

Seems like you should have a chat with the developer and tell them to get on with it. What do any of the other tenants/owners think?

[LooneyTunes]

Your issue is probably really one of valuation: what’s the building worth without certification (which, based on history, you probably need to assume you’re never going to end up with quickly, if ever)?

The obvious solution is to agree a sum to be withheld, payable on receipt on the certificate and subject to a long-stop date.

Of course, what you’re up against is the fact that the developer has found it possible to sell the units to various parties without certification so may well just decide to re market until he finds someone else happy to proceed on the basis that they are currently uncertified.

[Rough101]

You can’t close BREEAM out on a shell building, as some if the assumptions in the assessments need signed off with evidence that you have actually completed it in the manner it was assessed.

That’s why it won’t be complete, but there is a real risk that the work done to date doesn’t have the right evidence so it’s never getting BREEAM sign off.

Also BREEAM has levels right up to outstanding, have you seen the report?

I’ve also never seen it as a planning condition, it’s just usually a badge that certain corporate occupiers look for.

[JoshSm]

What do your contracts say? The reason all that paper exists is so you can bash it over the head of the other party if things don't work out.

And what realistically is the likelihood and form of any consequence of this omission and who holds liability?

[surveyor]

I would have thought it relatively straightforward to make it a condition of the sale that the developer complied with the planning conditions along with a cost clawback if they don’t.

[Lynch91]

Who is the developer?

[Keep it stiff]

Rough101 said:

You can t close BREEAM out on a shell building, as some if the assumptions in the assessments need signed off with evidence that you have actually completed it in the manner it was assessed.

That s why it won t be complete, but there is a real risk that the work done to date doesn t have the right evidence so it s never getting BREEAM sign off.

Also BREEAM has levels right up to outstanding, have you seen the report?

I ve also never seen it as a planning condition, it s just usually a badge that certain corporate occupiers look for.

BREEAM as a planning condition is not unusual. The target here is mid-range. You are right, that if evidence was not submitted during the construction process that it might never be achieved, it all depends on what scores were obtained and which might still be available, BRE don't score retrospectively.

I suggest look at the planning portal, conditions of the original consent will be set out there and possibly variations. Could this be picked up by the Local Authority as a planning violation? Possibly, but I very much doubt it.