Upper Tribunal Paves Way for Former Corporate HQ's Conversion Into 114 Flats

Record employment levels mean strong demand for office space, but the need for more new homes is perhaps even more pressing. A case concerning proposals to convert an office block into 114 flats highlighted the difficulty of balancing those requirements.

The block, built in the 1980s, had served as a corporate headquarters until 2013 but had since stood empty, falling victim to vandalism and general disrepair. A private equity investment company had bought the building's 150-year lease for £5.25 million with a view to turning it into flats.

However, the local authority – which owned the block's freehold – was anxious to see it refurbished and returned to office use. It had refused to relinquish a covenant in the lease which restricted the building's use to offices only. In those circumstances, the company applied to the Upper Tribunal (UT) under Section 84 of the Law of Property Act 1925 to remove or modify the covenant.

In upholding the application, the UT found that maintaining the office use of the block would yield no substantial practical benefit to the council. The value of its freehold interest would be about £3 million if the block were refurbished to provide high-class offices. Its conversion into flats would boost that value to £3,125,000, whilst only marginally decreasing the council's rental income.

The council argued that the block was in a prime strategic location and pointed to the need to promote employment in its area. It was submitted that turning it into flats would be the thin end of the wedge, encouraging further loss of office space to make way for residential development.

The UT, however, found that, whilst there was demand for high-spec offices in the area, there was currently no shortage of such space. Retaining the block as offices was thus not essential to the area's economic wellbeing. The covenant was modified to the extent required to enable the block's conversion into flats.