How to Change the Destination of a Commercial Premises?

In summary

Converting a commercial premises into a residence or another use requires complying with legal procedures and undertaking the necessary steps with the relevant authorities. Here are the steps to follow for a change of use in full compliance.

What is a change of use?

The change of use of a premises involves modifying its original purpose to assign it to a new function. Each premises, whether commercial, residential, or intended for another use, has an intended purpose set during its construction or last renovation. This purpose, often determined by the Urban Planning Code, corresponds to the intended function of the property.

Examples of changes of use

A typical change of use might include converting a commercial space (such as a shop or restaurant) into housing or offices. For example, an old bakery can be transformed into an apartment or a space intended for craftwork can become an office area. Such transformations often respond to market evolution needs or reallocation strategies in urban areas.

The importance of the Local Urban Plan (PLU)

The Local Urban Plan (PLU) plays a crucial role in implementing a change of use. This document sets the urban rules applicable to each geographical zone within a municipality. It defines the possible uses for land and buildings based on local development goals, environmental considerations, and heritage preservation. The PLU classifies different parts of the community territory into zones with specific uses (residential, commercial, industrial, etc.).

For a change of use to be approved, it must comply with the provisions of the PLU. For example, if a commercial space is located in an area where only retail uses are allowed, converting it into a residence may be impossible. Additionally, some PLUs impose further restrictions, especially in heritage protection zones or neighborhoods designated to preserve local commerce.

Difference between change of use and change of purpose

It is important not to confuse change of use and change of purpose. Although these two concepts seem similar, they follow different rules. The change of use concerns assigning a building from one functional category to another (e.g., from a commercial space to a dwelling). The change of purpose, on the other hand, aims to alter how a property is used without changing its functional category (e.g., switching from a regular residence to short-term rental).

Thus, a change of use is usually final and linked to the building, whereas a change of purpose is often temporary and can be personalized according to the occupant’s needs.

Administrative formalities related to the change of purpose

To carry out a change of purpose, certain administrative steps must be followed. Depending on the scope of work, you will need to submit either a prior declaration or a building permit request. This formalities is essential to ensure the project complies with urban planning rules and zone-specific regulations. For example, minor internal modifications may require a prior declaration, while structural changes affecting facades or framework will necessitate a building permit.

Administrative procedures

Check the Local Urban Plan (PLU)

Before starting a change of purpose project, the first critical step is to verify the Local Urban Plan (PLU) of your municipality. The PLU is an administrative document establishing rules for land development and usage within a city or metropolitan area. It determines the possible purposes for buildings in various zones based on urban development objectives, economic development, and heritage preservation.

Why consult the PLU?

The PLU is essential to ensure that the planned change of purpose is legally permitted. Each zone within a municipality is assigned a specific use, whether residential, commercial, industrial, or public services. Therefore, in some zones, the PLU may prohibit converting commercial spaces into residences to maintain local economic activity or preserve the commercial character of an area, particularly in city centers. Consequently, a project that contradicts PLU directives will be automatically refused by urban planning services.

The zones and their restrictions

The PLU generally divides the territory into several zones that each have specific rules. These zones can be:

• Urban zones (U): These areas are mainly intended to host buildings and activities. Changing use within these zones is more likely to be permitted, provided it respects the zone-specific regulations.
• Agricultural zones (A): In these areas, agricultural uses are favored. Changing use to residence or commerce is usually restricted or forbidden, with exceptions.
• Natural zones (N): These areas are protected for environmental and scenic reasons. Changes of use in these zones are particularly regulated and often highly limited.
• Protection zones: Some specific zones (such as historic centers or heritage districts) may have additional rules to preserve architectural heritage. Even a simple change of use in these zones might require detailed analysis from local authorities.

The procedures to consult the PLU

To obtain this information and determine if the change of purpose is possible in your premises’ zone, you should:

1. Contact the urban planning service at your city hall. This service can inform you about urban planning rules and provide you with a copy of the current PLU.
2. Consult the PLU online, if a digital version of the document is available. This can give you a quick overview of the applicable rules for your project without needing to go there physically.
3. Ask specific questions about possible restrictions. Clarify whether exceptions or waivers can be granted, especially if your project might have particular benefits for the community (for example, revitalizing a neighborhood).

Particular cases for large cities

In some large cities such as Paris, Lyon, or Marseille, urban rules can be even stricter. The PLU may be supplemented by specific plans aimed at balancing housing, commerce, and green spaces. For example, there could be priority zones where conversions of commercial premises into residences are encouraged to address housing shortages. Conversely, in some shopping districts, the PLU might prevent such transformations to preserve economic attractiveness.

The risks of non-compliance with the PLU

Ignoring the PLU or undertaking a project without ensuring compliance with urban planning rules can lead to severe penalties. Your project for a change of purpose may be canceled, and in some cases, you might be required to restore original conditions. Additionally, fines may be imposed for unauthorized work.

Submit a prior declaration or building permit application

When your change of purpose project complies with the Local Urban Plan (PLU), the next step is to formalize the process with the relevant authorities. Two procedures are available: a prior declaration of work or a building permit application. The choice depends on the scope of modifications planned on the premises.

The prior declaration of work

The prior declaration of work is a simplified administrative process. It is required when the change of purpose does not significantly modify the building’s exterior or load-bearing structure. This procedure is generally sufficient if you wish to convert a commercial space into a residence without undertaking major work such as facade modifications or new openings.

When to use a prior declaration?

A prior declaration is mandatory when the project involves:

• Interior arrangements without affecting load-bearing walls or facade.
• Redesigning internal spaces, such as adding partitions or updating electrical wiring and plumbing.
• The transformation of a use into another without visible external impact, e.g., changing a office into an apartment.

The building permit application

A building permit is required when work affects the structure of the building or its exterior appearance. It involves a more detailed process than a prior declaration and requires a thorough review by urban planning services. This permit is necessary especially for work modifying facades or impacting the floor area.

When to request a building permit?

A building permit is required in the following cases:

• When work modifies the façade of the building, such as adding windows, balconies, or reconstructing the storefront.
• If the project impacts load-bearing walls, such as during demolition or structure relocation.
• In case of expanding the habitable area by more than 20 m² or if the project exceeds the limits set by the PLU.

The procedures for each process

Submission of prior declaration

For a prior declaration, you must fill out form Cerfa n°13404. This form must be accompanied by several documents, such as:

• A site plan showing the location of the building within the municipality.
• Existing condition photos demonstrating current state.
• A detailed description of planned work.

The municipality has a one-month processing period to review your request. If no response is received after this period, the request is considered accepted by default.

Request for a building permit

For a building permit, you must complete form Cerfa n°13409 and provide more detailed documents, including architectural plans if structural modifications are involved. The required documents may include:

• A site plan indicating structural changes.
• Facade plans before and after work, illustrating the planned changes.
• A material description, especially for openings and finishes.

The review process usually takes two to three months, during which authorities may request additional information or reformulate parts of the project. Silence after this period can tacitly approve your permit.

Costs and implications

Filing a prior declaration or building permit application generally does not involve direct administrative fees, but some municipalities may apply development taxes based on the scope of work. It is also important to note that any refusal of a prior declaration or permit can be challenged within two months with the town hall or relevant authorities.

Consequences of non-compliance

Submitting a prior declaration or building permit application is obligatory to ensure the legality of the work. If modifications are made without following these procedures, you risk penalties. These may include being required to restore the premises to original condition or facing significant financial penalties. Moreover, illegal work can complicate future sale transactions and lead to administrative blocking.

Obtain approval from the co-ownership (if applicable)

If the commercial premises you wish to transform is located within a co-owned building, it is essential to consult the co-ownership agreement before initiating any proceedings. This document establishes the operational rules of the co-ownership and may contain specific clauses regarding the use of premises within the building. In other words, you must ensure that the planned change of use (for example, converting a commercial space into residence) is authorized by the co-ownership agreement.

Why consult the co-ownership agreement?

The co-ownership agreement defines the rights and obligations of each co-owner and specifies permitted uses for different types of properties within the building. If the agreement stipulates that certain premises must remain for commercial use, converting them into residences may be forbidden. Such restrictions often aim to protect the balance between commercial and residential activities in the building and to maintain cohesion between private and professional spaces.

Need for approval from the general assembly

Even if the co-ownership rules do not outright oppose the transformation, you need to obtain approval from the general assembly of co-owners to carry out any work that might affect the building. The general assembly meets to vote on important decisions regarding the co-ownership, such as renovation works or change of premises use.

Which situations require approval from the co-ownership?

• Transformation of common areas: If the work or change of use involves modifying or using common parts (hallways, entrances, elevators), approval from the co-owners is mandatory.
• Impact on other co-owners: If the conversion from a commercial space to a residence directly affects other occupants, for example, by increasing the number of residents or modifying communal charges, the general assembly must decide.
• Potential nuisances: Some changes of purpose can cause disturbances (noise, additional traffic), requiring the approval of co-owners to prevent conflicts.

Procedures to obtain approval

1. Consult the co-ownership syndic: Before any action, it is recommended to discuss the project with the co-ownership syndic, who can guide you on the process and inform you of possible restrictions in the agreement. The syndic can also advise on presenting your project at the assembly.
2. Submit the project to the general assembly: You must present your project at the next co-ownership general assembly, providing all relevant information about the work, impact on the building, and other co-owners. This meeting usually occurs annually, but you can request an extraordinary assembly dedicated to your project.
3. Prepare a complete file: Ensure to prepare a detailed dossier including the work plans, the estimated impact on the building, and any other information that might help persuade co-owners to vote in favor. Remember, some co-owners might oppose if the project risks causing disturbances or additional costs.
4. Obtain the required majority: Depending on the scope of work, you will need to secure a simple or qualified majority during voting. Usually, a absolute majority is required for work affecting common parts or changing the use of premises. If you get a favorable agreement at the vote, you can proceed with the work.

Plan the necessary work

Converting a commercial premises into a residence often involves significant work to meet habitation standards and legal requirements. These works are essential to ensure the new dwelling is both comfortable and compliant with current regulations. Here are the main steps to consider during planning.

1. Connection to essential networks

The first critical aspect in transforming a commercial space into a residence is connection to water, electricity, and gas networks. Commercial premises are usually not equipped to meet residential consumption needs and domestic equipment. Therefore, it is necessary to:

• Update electrical installations to meet safety standards for a dwelling, including installing separate circuits for kitchen, bathrooms, and appliances.
• Check water connection to ensure potable water supply complies with quality standards for habitation. Additionally, a wastewater evacuation system must be installed or updated to meet domestic needs.
• Install or modernize gas supply, if heating or cooking uses gas. If the premises lack a connection, work to connect to the urban network will be needed.

2. Interior layout of essential rooms

To convert a commercial space into a functional dwelling, some rooms must be created or adapted to meet residential standards:

• Creating a bathroom: It is essential to install full sanitary facilities: shower or bathtub, sink, toilet, and proper ventilation. This room must meet ventilation and insulation standards for comfort.
• Arranging a kitchen: The kitchen requires dedicated space for electrical appliances and water supply. Equipment such as a sink, stove, and refrigerator should be integrated. Installation of kitchen furniture suited to residential use should also be planned.

3. Compliance with habitability standards

Any dwelling must meet the legal hygiene criteria defined by Decree No. 2002-120 of January 30, 2002 to ensure minimum comfort and safety levels. These standards include:

• Minimum living space: The property must provide at least 9 m² of living space with a ceiling height of 2.20 m.
• Proper ventilation: Every room should benefit from natural or mechanical ventilation to ensure air circulation and prevent humidity issues.
• Sufficient natural light: Living rooms must have windows or openings to the outside providing natural light. If the commercial premises lack this, windows or roof windows will need to be created, possibly requiring a building permit.

4. Safety and accessibility

Beyond comfort standards, transforming a commercial space into a residence must comply with current safety standards:

• Fire safety systems: A dwelling must be equipped with smoke detectors conforming to standards. Depending on the configuration, fire doors or updates to the electrical system to reduce fire risks might be necessary.
• Accessibility standards: If the dwelling is intended for rental or located in a new or recently renovated building, it must meet certain accessibility standards for persons with reduced mobility (PRM). This may include installing ramps, widening doors, or adapting bathrooms.

5. Thermal and acoustic insulation work

Regulations also require the dwelling to meet insulation standards to ensure energy efficiency:

• Thermal insulation: Walls, ceilings, and floors should be well insulated to reduce heat loss and ensure comfortable temperature year-round. Openings (windows, doors) should have double glazing to optimize insulation.
• Acoustic insulation: If the premises are located in a noisy area (near a road, in a shopping district), installing soundproofing is essential to reduce noise nuisances for future residents.

6. Cost and management of works

The costs of works to transform a commercial premises into a residence vary based on initial condition and scope. In general, about €1,500 to €2,000 per square meter should be budgeted for a full conversion, including network connections, room arrangements, and compliance. Consulting an architect is recommended for large projects or premises exceeding 150 m². An architect can help ensure regulatory compliance and optimize layout.

Types of work to plan

Potential costs of the transformation

Inform the cadastral office

After successfully completing the change of use of your commercial premises, it is mandatory to inform the cadastral office. This administrative step updates the fiscal classification of your property and ensures all modifications are legally recognized. Failing to inform the cadastre could lead to administrative issues and future tax complications.

Why inform the cadastral office?

When converting a commercial property into residential, the tax nature of your property changes. As a commercial premise, your property was subject to the territorial economic contribution (CET), a tax applied to commercial or professional activities. However, a residence is subject to the residence tax and property tax. Therefore, it is crucial to inform the cadastre to allow for recalculation of local taxes based on the new use.

Tax implications of the change of use

Depending on the change of use, the local taxes payable can vary:

• Residence tax: Once the premises are transformed into a residence, you will be liable for the residence tax, applicable to primary or secondary homes.
• Property tax: The property tax already applies to commercial premises, but the amount can be reassessed after the change of use, based on the new cadastral rental value.
• Elimination of CET: By converting the premises into a residence, the territorial economic contribution (CET), concerning professional or commercial premises, will no longer apply.

The recalculation of taxes is essential to ensure that the tax situation of your property matches its new use, and this must be officially recorded with the cadastre.

How to inform the cadastral office?

1. Fill out a declaration of change of detail or use: You must complete form Cerfa n°10517*02 (declaration IL n°6704), which serves as the declaration of change of detail or use of built properties. This form notifies the tax administration that the property has changed purpose.
2. Submit the form to the cadastral office: Once completed, this form should be sent or filed at the cadastre office managing your property. Typically, this should be done within three months after completing the work.
3. Documents to provide: Besides the form, it may be necessary to attach site plans, before and after photos, and other documents clearly identifying the changes made.

Deadlines and consequences

The fiscal authority considers this information for adjusting the local taxes during the next declaration period. It is therefore vital to ensure all information is correct and the form is filed within the specified deadlines. Failing to do so may result in paying incorrect taxes and subjecting yourself to unexpected adjustments later.

Moreover, in the event of resale, failure to update the change of use with the cadastre can complicate the transaction. The change of use must be clearly registered to ensure full transparency during resale.

Understanding the fiscal implications

The change of use of a commercial property into a residence has significant tax consequences that should be well understood before finalizing the project. Changing the type of use of an asset also modifies the applicable taxes. Here are the main points to consider.

1. Transition from territorial economic contribution (CET) to residence tax

When converting a commercial property into a residence, you are no longer liable for the territorial economic contribution (CET), which applies to activities carried out on commercial or professional premises. Instead, you will pay the residence tax, an annual tax applicable to all dwellings. This tax depends on the cadastral rental value of the property and the municipality where it is located.

How does the residence tax work?

• The residence tax is calculated based on the living area, the location, and the property characteristics.
• In some municipalities, especially in tight zones, the residence tax might be higher for secondary homes, an important consideration if you do not live in the property year-round.
• If you occupy the property as a primary residence, some exemptions or reductions may apply, particularly for low-income households or seniors.

2. Revaluation of property tax

In addition to the residence tax, changing the use often leads to a reassessment of the property tax. This tax is paid by all owners, whether the property is commercial or residential, but the amount may increase depending on work performed.

When is property tax revalued?

• If you carry out significant expansion or renovation work during the transformation of the commercial property into a dwelling, the cadastral rental value will be adjusted. This means the base for calculating property tax will be reassessed, increasing the amount you owe annually.
• The calculation of property tax considers the physical characteristics of the dwelling (size, number of rooms, amenities) and its location. For example, a home in the city center or a highly sought-after area will be taxed more heavily than in suburban zones.

3. Impact of expansion works on taxes

If your project includes expansion works (adding rooms or extending the building), this can have important tax consequences:

• Increase in floor area: Adding square meters directly affects the cadastral rental value, which serves as the basis for property and residence taxes.
• Creation of new amenities: Installing items like a fitted kitchen, additional sanitary facilities, or a garage can also increase the property’s rental value, leading to higher local taxes.

It is important to consider these tax implications before planning works to avoid surprises when taxes are due.

4. Development tax

In some cases, converting a commercial premises into a residence, especially if it involves expansion or renovation, may trigger the payment of the development tax. This tax is collected upon issuance of a building permit or prior declaration of work and is calculated based on the additional area created.

Calculation of the development tax:

• The development tax is determined by the additional surface area (in square meters) created by the works multiplied by a fixed value.
• It is also influenced by a rate set by the municipality, region, and sometimes the intercommunal authority. This rate usually varies between 1% and 5%, depending on the geographic area.
• For example, if you expand or add windows, a balcony, or a terrace, this can trigger this tax.

5. Consequences when renting out

If you plan to rent the property, the tax consequences will also differ depending on the type of rental:

• Unfurnished rental: If you rent your property unfurnished, the income received will be taxed under rental income. You can benefit from a simplified regime if your rental income is below a certain threshold, or opt for the real regime that allows you to deduct certain expenses (works, agency fees, interest on loans).
• Furnished rental: For furnished rentals, your income will be taxed under the Industrial and Commercial Profits (BIC) category, which may offer additional fiscal advantages, especially via the micro-BIC regime or the real regime allowing depreciation of the property and equipment.

Tax implications

Conclusion

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