Added Value On The High Street?

Do you own or are you thinking of buying a high street property with unused space above? Converting this space to residential use can give additional income or provide you with a cash bonus – but is it worth it?

• The costs of converting the unused space need not be high (typically cost in the region of £20,000 - £30,000).
• The refurbishment will improve the state and condition of the property and add value.
• The residential occupiers will contribute on an ongoing basis to the maintenance of the property.
• Having live-in occupiers above will add security to the retail unit.
• High quality residential accommodation above a retail unit should enhance the area and the attractiveness of the retail unit.
• The residential accommodation could be let out on a short term letting (to provide income) or sold on a long leasehold basis (to raise cash).

But are there any hurdles to overcome?

• Many properties of this nature are let to multiple retailers who may not be interested in converting the properties themselves, having a second occupier on site or the complications of a more complex legal structure.
• Multiple retailers and property investors may not want to run short term residential lettings, but may be more receptive to schemes involving long leasehold flats.

With the government’s target of 240,000 new homes every year for the next 12 years, you may think there are plenty of incentives on offer, but

• the 100% capital allowance concession on the development of redundant areas above shops is restricted to lettings, prohibiting a sale within seven years, and
• direct investment in residential property is prohibited if the property is owned in self-invested pension (SIPP).

However, conversion can benefit all parties if circumstances allow and with the right legal structure.

• If the whole property is empty then this is an ideal opportunity to set up a scheme that is attractive to residential and retail occupiers and investors. 
• If your retail tenant’s lease is coming up for renewal, why not ask the tenant if they are interested in losing the responsibility for the repair and security of the unused space above the shop. A new lease of just the shop may well give you no less rent.
• If the retail lease still has some years to run there is nothing to stop you approaching the tenant and putting forward a proposal which benefits you both.
• The retail tenant may be happy for the residential accommodation to be let out on short term lettings or long leasehold, but check first.
• Correctly drafted leases for the retail and residential parts should protect all parties, allowing the conversion to have minimum, if any, impact on the investment value of the retail unit.

There are thousands of properties of this nature on high streets all over the country that could be converting giving you extra income and helping to increase urgently needed homes in the South West. 

For more information or advice, please contact Nigel Coveney

Published 03/01/2008. The author of this article is Nigel Coveney