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High Street Rental Auctions: what are they and how do they work?6 December 2024

Commencing 2 December 2024, local authorities in England have the power to hold rental auctions to let qualifying high-street premises that have been unoccupied for the whole of the preceding year, or for at least 366 days in the preceding two years. By granting these new powers, the government hopes “to breathe new life back into high streets and transform long-term empty shops”.¹

The powers have been granted under part 10 of the Levelling-Up and Regeneration Act 2023 (the “Act”). The detail of the new procedure is set out in supporting regulations (the “Regulations”). The government has also published non-statutory guidance intended to guide the parties through the auction process.

Some of the key features of the new rules are set out below.

"The government hopes 'to breathe new life back into high streets and transform long-term empty shops.'"

What are “qualifying high-street premises”?

“Qualifying high-street premises” are premises that the local authority considers suitable for “high-street use” and are situated in a designated high street or town centre within that local authority’s area. The local authority has the power to designate a street as a high street and/or a network of streets as a town centre if they consider them to be of importance to the local economy because of a concentration of “high-street uses”.

What is “high street use”?

“High-street use” includes:

  • shops;
  • offices;
  • services to visiting members of the public;
  • restaurants, bars, and cafes etc.;
  • used for public entertainment or recreation;
  • communal halls or meeting-places; and
  • compatible manufacturing or other industrial processes.

However, premises used wholly or mainly as warehouses are specifically excluded.

Can a local authority let “qualifying high-street premises” without the landlord’s consent?

That depends. If the landlord does not participate in the process, the local authority may enter into an agreement for lease or lease which will be binding on the landlord.

To begin the process, the local authority must serve an initial notice on the landlord which will operate for a period of 10 weeks and gives the landlord the opportunity to be involved in the letting process. During this period the landlord’s freedom to deal with the property is restricted subject to the local authority’s consent.

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"The local authority will be responsible for preparing the auction pack."

After eight weeks have passed, if no letting arrangement has been agreed by the landlord with the local authority’s consent, the local authority can serve a final notice. This imposes further restrictions on the landlord’s ability to deal with the property including restricting their ability to carry out works without the local authority’s consent.

Landlords have the right to appeal the final notice by serving a counter-notice indicating on which of the seven statutory grounds they will be relying. If the appeal is unsuccessful, or no appeal is lodged, the local authority can continue to the rental auction.

The guidance contains a useful flowchart of the process and time frames.

Who prepares the auction pack?

The local authority will be responsible for preparing the auction pack. However, landlords are required to provide accurate replies to enquiries, proof of title, and other documents and information regarding the premises such as EPCs, gas, water, electrical safety certificates and fire safety certificates.

What are the terms of the agreement for lease and the lease?

The Act and Regulations prescribe certain terms for both the lease and agreement for lease, including:

  • Term: between one and five years.
  • Deposit: higher of £1,000 and three months’ rent.
  • Rent: payable monthly in advance on the first day of the month.
  • Repair: limited by schedule of condition.
  • Alterations: installation of shop fittings permitted without the landlord’s consent. Other alterations permitted subject to landlord’s consent, not to be unreasonably withheld or delayed.
  • Dealings: prohibited except for assignment of whole with landlord’s consent, not to be unreasonably withheld or delayed. AGAs required where reasonably requested by the landlord.
  • Use: the use proposed by the successful bidder within the suitable high street use identified by the local authority. Change of use not permitted.
  • Security of tenure: excluded.

"The success of the initiative requires willing potential tenants to bid on the vacant properties."

Who is responsible for the costs?

The local authority will be responsible for marketing and auction fees. However, it may require the successful bidder to pay for surveys, searches and legal costs for the preparation of the agreement for lease and lease. The landlord will be expected to pay costs associated with the undertaking of works required to bring the premises up to the minimum standard prescribed by the Regulations, such as in relation to fire safety.

Comment

The introduction of the Act and Regulations may be controversial for landlords as it infringes on their freedom to select their tenants, set rental values and deal with their properties as they desire. However, with one in seven high street shops now laying vacant nationwide, there is clear incentive for the government to introduce such legislation as part of an attempt to revitalise high streets and prevent properties remaining empty for extended periods of time.

It is uncertain to what extent local authorities will have the time and resources to exercise their new powers, despite more than £1m of funding pledged by the government. Furthermore, the success of the initiative requires willing potential tenants to bid on the vacant properties. Where properties have been vacant for long periods, this may be for economic reasons such as high business rates, the cost of redevelopment works and low footfall. However, the new rules may encourage some owners to let out their persistently vacant properties on their own terms to avoid being forced to do so through the statutory auction process. Certainly, the government has acted quickly, already selecting four local authorities in England as early adopters of high street rental auction powers. These local authorities will be expected to take immediate action and work with the government to provide strategic guidance and best practice advice to other councils.

London Trainee Joshua Bancroft also contributed to this article.

Footnotes

[1] https://www.gov.uk/government/news/high-streets-to-be-revitalised-with-new-legal-powers (accessed 02/12/2024).

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