Posted by Ed Bedingfield, Founder & Managing Director, Safe Track Risk Management
Hybrid working, now well established across many UK businesses, has left a growing number of office buildings under-occupied. Outside of prime locations, and often including town centres and business parks, demand has fallen sharply. At the same time, the UK housing shortage shows no signs of abating. For investors, the logic is straightforward – convert vacant commercial stock into residential units, either for sale or for the increasingly profitable build-to-rent market.
For Ed Bedingfield, the Founder and Managing Director of Safe Track Risk Management and the CPN’s newest Network Partner, this shift is born out by increased demand for due diligence work on office-to-residential conversions, and particularly for HRB’s (18m+) where the greatest profits stand to be made, but where the Building Safety Act comes into play and the Government’s Gateway system requirements apply.
In the first of his blogs for the CPN, Ed discusses how this work has played out, the hidden complexities that can impact on margins and the importance of conducting a thorough compliance audit before you sign on the dotted line.
The opportunity – outside appearances can be deceptive
“People see these cavernous office buildings standing empty and the opportunity seems obvious. Permitted development rights that have made it quicker to get these schemes moving have encouraged that sentiment.” says Ed. “But the hardest bit is trying to figure out what you can do on the inside as all of these other factors then come into play when you are converting a building for residential occupancy.”
Mistake No.1 – overestimating units
The first mistake Ed is most commonly confronted with concerns unit numbers. Investors arrive with a target in mind, but fire strategy modelling frequently cuts it. “Investors basically say the last 20% of flat sales are your profit,” Ed explains. “So when the design process reduces unit numbers, it significantly reduces margins.” Office buildings were never designed for residential occupation — the overall fire strategy including fire compartmentation, travel distances, fire engineering solutions (such as smoke extract or sprinkler coverage), acoustic separation, all create constraints that are not visible from the outside.
Height thresholds matter too. Ed gives a telling example: a client purchased a building at 10.56 metres — deliberately staying below the 11-metre mark where additional fire safety requirements apply. “They got the architect to measure it before they bought it. That was good foresight.” Even so, it took considerable back-and-forth with building control to confirm the position.
Fire Compartmentation – where buildings most often fail
In terms of the inspection itself, fire compartmentation, which is treated as the building’s internal defence system, is the most common failure point. Walls, floors and doors are designed to contain fire within one area for a specified period, but service risers and retrofitted cable routes regularly compromise that integrity. ” Broadband installations regularly become an issue” says Ed “Suppliers come in, knock holes in walls and don’t firestop it properly.” In the case of HRB’s, where the BSA demands a much more complete set of records, if those documents are missing and materials cannot be evidenced, Ed has known “remedial costs that have run into significant numbers.”
Operating in such a costly and complex environment, false economies are tempting. Cavity barriers evidenced in some areas but not others, fire detection systems signed off with detectors missing. “You can’t hide it for long,” says Ed. “Construction companies carry long periods of liability. It’s a bit of a gamble and I would always advise against this kind of corner cutting, it will only come back to bite you.”
Building Control – something of a postcode lottery
Operating nationwide, Safe Track’s experience at the hands of Building Control is particularly revealing. The standard of inspections “varies significantly,” as stretched local authorities increasingly farm out the work to private contractors. Like education or healthcare provision, it’s something of a “postcode lottery” and a “political game” requiring sensitive relationship management. This is where Ed’s value can come into its own as “ill informed” inspectors will frequently make demands that fall outside the law. He relates a recent experience where he accompanied a building control officer around a high-rise building.
“In three hours, he mentioned 20 or 30 things he expected us to do. I asked him to put down on paper what we legally had to do. He came back with three. The saving for my client was significant without compromising the buildings safety”
But even with the inspection complete, a final certificate from an Approved Inspector does not necessarily mean the building is fully compliant. “Building control inspections are sample-based, not exhaustive,” says Bedingfield. “They won’t examine every penetration, every fire barrier, every detail. You can’t just rely on a piece of paper — that’s just the starting point and most importantly it’s not a guarantee of ongoing operational safety.
Property management responsibilities – beyond the tick box
Once residents move in, inevitably fire doors get wedged open, combustible items appear in communal areas and maintenance access becomes a recurring challenge. Managing agents as Principal Accountable Person’s, who must now comply with the Fire Safety Order, must have systems in place that address any such breaches. In the case of HRB’s, there must be a clearly evidenced Resident Engagement Strategy with a formalised Mandatory Occurrence Reporting regime included. Neither is a tick box exercise.
Other non-fire compliance areas that must be addressed include ventilation and mould (Awaab’s Law), structural risk assessments for HRB’s, and new regulations coming into force in April that will require managing agents to demonstrate how vulnerable residents — not just wheelchair users, but those with hearing, mobility or sight impairments, are supported during evacuations. Although these new evacuation regulations will only to HRB’s initially, Ed believes “it’s only a matter of time” until all managed residential blocks must comply. Again, none of this is straightforward and resource heavy.
What good looks like – a clearly evidenced and thorough due diligence report
For Ed a well-run conversion scheme starts at the feasibility stage, not after acquisition. “Bring in a fire safety and compliance specialist during the research stage. Stress test the building’s layout, ensure the fire strategy genuinely works on paper, and maintain clear documentation from the start.” The risks, he argues, are entirely preventable, if they are identified early and there is, as Ed’s example highlights, this hugely variable gap between guidance and the law that leaves a lot of room for push back.
A thorough due diligence report will flag compartmentation concerns, quantify remedial costs and provide either solid reassurance of a return on investment or act as a powerful negotiation tool before the deal completes. Ed concludes…”this is very much the direction of travel, without doubt it can be good business, but it’s an opportunity that must be carefully considered from a risk and compliance perspective, and on a case by case basis.”
Safe Track Risk Management is available to support member firms in those considerations and at whatever stage they are at in that process. You can contact Ed on: 07477 046878 ed.bedingfield@safetrackrm.com