As the Government continues to contend with the housing crisis, there is an increased focus on the rejuvenation of existing buildings by the private sector. With a nationwide requirement of up to 60,000 new homes per year until 2030, this approach forms part of a range of measures identified in the Government’s overarching housing strategy Housing for All and in particular to the ‘town centre first’ policy.
There is talk globally about converting older office buildings into residential accommodation. To date, this has gained little traction in Ireland. There has also been much talk about converting accommodation over retail premises (something which has been discussed for years but with little success) and, to a lesser extent, licensed premises. For the pub sector, this is a great idea in theory and sounds simple. But there are many considerations, many of which make it more complicated than it appears on the surface.
Encouragingly, for building owners three financial grants for conversions are available. These have different criteria but, when met, a combined grant of €95,750 may be available.
The Croí Cónaithe (Towns) Fund provides up to €50,000 for the refurbishment of a vacant property for both occupation as a principal private residence (PPR) and for the conversion to rental units. To be eligible for this grant the premises must have been constructed before 2007 and have been vacant for two years or more.
Initially this fund applied only to conversions by owner-occupiers where the premises would be used as a PPR for premises built before 1993. Since May, however, an amendment has allowed for the conversion to rental units for newer premises. Unfortunately, the requirement around the entire property being vacant remains in place. Therefore, where a licensed premises or retail store has been trading, but with the upper floor unoccupied and/or derelict, the grant is not available.
If a building is deemed derelict (structurally unsound and dangerous) a further top-up of €20,000 may be available. Again, this grant is applicable only to non-trading premises.
The SEAI energy upgrade scheme covers works such as insulation, heat pumps and solar panels. To be eligible for these upgrade grants the building must have been constructed pre-2011 for insulation and heating controls and pre-2021 for heat pumps and renewable systems. The largest grant available is €26,750 for a detached building but ranges downwards to €16,150 for a mid-terraced building, which is likely to apply to most licensed and retail premises around the country.
To receive the grant, certain parameters must be met in accordance with the technical requirements set out in the SEAI domestic technical standards and specifications, better energy homes code of practice and quality assurance and disciplinary procedures.
Although these grants provide extensive monetary contributions towards construction costs, the Croí Cónaithe (Towns) Fund grant with top-up requires the entire property to be either vacant for two years or deemed derelict. While this is likely to apply to many licensed premises in smaller towns and villages around the country and it very positive for them, many properties in major urban areas will struggle more to meet the criteria. Generally, these are the pubs which are close to transport infrastructure and amenities, and in areas in most demand for housing. We believe this two-year rule needs to be reviewed and perhaps exceptions considered.
Planning and fire safety
We greatly welcomed the Government’s extension to the 2018 planning regulations in February 2022. This introduced exemptions for the change of use of licensed premises, including vacant upper floors, whereby any conversion to up to nine residential units is exempted from planning permission. Although this simplifies and speeds up any renovation and redevelopment process, there are stipulations – for pubs, the licence must have lapsed. Therefore, for most premises, the upper vacant floors will need to be delicensed through an application to the courts.
In turn, any delicensing will trigger complete segregation and fire separation works to insulate the residential areas from the trading areas as well as a new fire safety certificate and a requirement to bring the remaining licensed premises up to current fire regulations. The cost, time outlay and disruption to a trading businesses can, in the majority of cases, make conversions unviable.
Repair and leasing scheme
There is also a repair-and-leasing scheme available, specifically aimed at bringing vacant properties in need of repair back into use for social housing. This scheme includes the conversion of vacant overhead accommodation to residential use. If the vacant overhead accommodation is suitable for social housing, the cost of the repairs to bring it up to the required standard is paid up front by the local authority or by an approved housing body (up to a maximum of €80,000 including VAT per unit)*. Unlike Croí Cónaithe, the scheme thankfully doesn’t require the full premises to be vacant and vacant “over-the-shop” units can, and have, been converted to social housing via the repair-and-leasing scheme.
In return, the property must be made available to the relevant local authority for social housing use on a long-term lease with the rental amount dependent on the type of lease (usually somewhere between 80 per cent and 92 per cent of the current market rent). An added benefit for the owner of the property is that if a lease is agreed with the local authority, it will be responsible for all internal maintenance and repairs during the duration of the lease.
This scheme is ideally suited to pub and overhead retail premises conversions. However, the take-up is likely to be limited due to the cap on repairs. The €80,000 per unit limit may not be sufficient to cover large-scale conversions with multiple units and is better suited to smaller premises that are already in reasonable condition.
Living City Initiative
The Living City Initiative is a tax-incentive scheme for certain properties in special regeneration areas (SRAs) and is designed to promote urban regeneration, enhance the attractiveness of city centres and support sustainable development. It was introduced in 2015 to help revitalise designated areas within the historic city centres in Dublin, Cork, Galway, Limerick, Waterford and Kilkenny. The initiative provides tax relief on refurbishing or converting residential or commercial properties and is open to owner-occupiers and landlords. Under this initiative, building owners who carry out qualifying works can avail of tax relief up to €200,000 which can be claimed back over seven years.
Although its limited to specific designated areas, those areas are city-centre locations where demand for housing is highest. Importantly the initiative can be applied to the upper floors only of trading pubs and €200,000 is enough of an incentive to lead to an increase in conversions/refurbishments. The main limiting factor on take-up will be that the entire cost will have to be incurred by the publican on day one with the tax incentive amount retrieved back over a seven-year period.
While all of the measures and incentives above are positive, the conditions attached to many are too onerous, which means building owners are choosing not to avail of them and leave their premises underutilised. In the midst of a housing crisis and a need to speed up housing delivery, this is far from ideal.
It is obvious there is significant potential to increase housing through the conversion of the upper floors of pubs and shops nationwide. For example, focusing on pubs alone, Lisney’s licensed and leisure team has sold 152 Dublin pubs over the past 20 years. Thirty-two of these included some former residences overhead that had fallen into disrepair. The upper floors of 75 per cent of these properties remain underutilised.
Equally, walking down any local retail streets it will be obvious that there are plenty of vacant upper floors over shops. We believe a more concise and less complicated financial grant system, allowing a combination of grants such as the repair and leasing scheme with the Living City Initiative, as well as streamlining the fire-certification process, would assist in a greater number of conversions and prove to be one of the many useful tools needed by the Government to meet housing demand.
Niall Kelly is a surveyor in Lisney Commercial Real Estate’s licensed and leisure division
*This article was updated to reflect the fact that the maximum loan available under the Repair and Leasing Scheme increased from €60,000 to €80,000 per unit (including VAT) in July of this year