A Local Authority will often use a Section 106 planning restriction when they want to control how a property can be used. These powers come from Section 106 of the Town and Country Planning Act 1990.
So why is this relevant to a holiday let property?
Local Authorities will impose a 106 to restrict how a property can be used and/or occupied.
For a holiday let this can mean having no residential usage to maintain tourism from holiday lettings rather than second home ownership. It will include clauses to prevent long-term holidaymakers so occupancy may be restricted to no more than 28 consecutive days or no more than 6 months in 12 months.
Having this type of Section 106 Agreement in place has 2 possible consequences:
You will not be able to ‘retire’ to this property and live in it permanently as your primary residence
Not all mortgage lenders will be happy to take on a property with a 106 clause
What are holiday let occupancy clauses?
They are also known as holiday let restrictions, usage restrictions or section 106 restrictions.
These are a placed on a property by the Local Authority Planning Department at the time that planning is sought/approved. They can be worded in different ways, dependant on how the Local Authority wants to control use of the property. Some clauses are worded in a way that allows 12 months holiday let use only, with a max occupancy of 30 days by one “occupant”. A clause that we saw recently was very specific in that it stated “11 months occupancy, for a maximum of 30 days by one occupant, the property must be vacant during the month of February”. Other occupancy clauses may state 10 months a year, on a similar basis.
So, how could a holiday let restriction affect you?
Arranging finance for a restricted property needs experienced help. They are specialist commercial mortgages, arranged on a bespoke basis.
As the value of any property is derived from the use to which it must be put, mortgages on restricted properties are more commercial in nature then a standard holiday let mortgage, because of the tie to the holiday market.
It is possible to appeal to the Local Authority to have a holiday let occupancy clause removed and, if they reject your application, take your case to the Secretary of State for the Environment. There is no certainty that they will overrule the Local Authority. You would be better advised not to purchase a restricted property rather than buy it in the hope that the restriction might be lifted on appeal. Certainly, if you are planning to retire to your holiday let, a restricted use property is out of the question, because it does not have full residential use.
If you are looking at investment return, it is usually higher as a percentage of the purchase price than a property that has full residential usage, because they tend to be less expensive to buy. This is because they are tied to a particular market and use, rather than the property market as a whole. Investors expect a certain level of return for the risk that they are taking.
Fortunately, there are some holiday let mortgage lenders that will accept section 106 agreements for holiday let properties (depending on the extent of the restriction).
We have found that many prospective purchasers of holiday let properties are not aware of these possible problems. Agents differ with some being more forthcoming than others. When viewing properties it is therefore important to bring up this subject at an early stage so you may consider your options.
Properties such as holiday lodges and those located within Parks or Complexes will nearly always have a Section 106 planning agreement restriction.
What are planning obligations?
Planning obligations are legal obligations entered into to mitigate the impacts of a development proposal.
This can be via a planning agreement entered into under section 106 of the Town and Country Planning Act 1990 by a person with an interest in the land and the local planning authority; or via a unilateral undertaking entered into by a person with an interest in the land without the local planning authority.
Planning obligations run with the land, are legally binding and enforceable. A unilateral undertaking cannot bind the local planning authority because they are not party to it.
Planning obligations are also commonly referred to as ‘section 106’, ‘s106’, as well as ‘developer contributions’ when considered alongside highways contributions and the Community Infrastructure Levy.