High Street Rental Auctions

On 31 March 2023, the Department for Levelling Up, Housing & Communities, published an open consultation paper on its controversial high street rental auction proposals, in particular seeking views that will form part of the ‘High Street Rental Auction Policy’ introduced by the Levelling Up and Regeneration Bill.

The problem

The paper is set against a background of increased and prolonged vacancies of shops and buildings on our high streets, which the paper describes as a ‘blight’. An analysis by Glide referenced in the paper elucidates the scale of the problem, stating that in 2019 there were approximately 172,000 vacant commercial properties, 8 in 10 of which were empty for more than two years and 1 in 5 empty for more than 5 years.

The government has apparently taken notice of the issue and the various wider consequences, key among which are:

• A negative impact on economic performance
• A reduction in footfall on the high street
• Loss of jobs
• Residents moving away from town centres
• Wider regional economic under-performance
• Impact on the look and feel of the area
• Boarded up shops becoming a target for vandalism, graffiti and anti-social behaviour.

The proposed solution

As part of its ‘Build Back Better’ scheme, and with a view to rejuvenating the high street, the Government is introducing ‘High Street Rental Auctions’, a new power enabling local authorities to require landlords to rent out persistently vacant commercial properties to new tenants.

The Government hopes that the scheme will facilitate co-operation between landlords and local authorities, regenerate communities and make town centre tenancies more accessible and affordable for tenants.

In summary, the auctions will allow local authorities to auction the rental rights of commercial high street property, which has been vacant continuously for longer than 12 months in a 24-month period or unoccupied for a period of at least 366 days in a 2 year period. Successful bidders will enter into tenancies of between 1 and 5 years. Notably, while use of the auctions will be at the particular local authority’s discretion, they are not intended to apply to properties whose landlords are actively seeking tenants.

Additional key safeguards for landlords include:

• A grace period of 8 weeks to fill their property independently
• A right to appeal a final notice
• Input on terms of use
• The ability to have input on deciding upon the final bidder
• A deposit taken from the tenant
• The usual legal remedies.

To keep costs low, a standardised framework for the agreement for lease and lease is being designed for use in the auction process. The consultation is also exploring whether the landlord should be obliged to carry out works to ensure that the physical state and condition for the premises achieves a minimum standard, but to ease the burden this will impose on landlords, the intention is to disapply the Minimum Energy Efficiency Standards for the  duration of the lease; an EPC would still be required but premises  could be let with a rating of F or G.

New Permitted Development Rights (PDRs)

PDRs are a national grant of planning permission that will allow certain building works and changes of use without the need to make a planning application. Two new PDRs are proposed which it is hoped will provide flexibility and support growth. The first will permit the change from the existing use of the high street premises to one of a range of ‘suitable high street uses’ to be specified without applying for planning permission. The second, to facilitate a lease renewal where the rental auction lease has been successful, would enable the premises to continue the high street rental auction use on a permanent basis subject to prior approval of the local authority. There are however, the following limitations:

• PDRs do not apply in conservation areas
• Matters involving transport and highways still require local authority approval.

The basic process

1.    Initial Notice Period

–    Vacancy conditions must be met – unoccupied for 12 months continuously in a 24 month period
–    Notice can then be served on the landlord.

2.    Grace Period 

–    Landlords have 8 weeks to enter into a tenancy which is satisfactory to, and has the consent of the local authority. It must start within 8 weeks, last for at least 12 months and be for a high street use.

3.    Final Notice

–    Sent by the local authority if the landlord fails to re-let within the Grace Period. The deadline for a Final Notice is 14 days from the expiry of the Grace Period
–    If the landlord serves no counter notice within 14 days of receiving the final notice, the auction process can begin.

4.    Counter Notice Period

–    During the Counter Notice Period the landlord can serve notice setting out the grounds of appeal.

5.    Appeals Period

–    The Landlord may issue an appeal within 28 days of the counter notice. Grounds for appeal include:

• Premises not considered suitable for high-street use
• Vacancy condition not satisfied
• Local benefit condition not satisfied
• Local authority should have consented to letting
• Development affecting premises
• Landlord intends for their own occupation.

6.    Auction Process

–    If the appeal is successful the process stops, if not, the local authority has 12 weeks to auction the premises and complete the contract for tenancy.

Conclusion

On the face of it this looks like potentially good news for the high street, if proactive steps are being taken to address the problem of empty properties in an effort to help rejuvenate our local high streets. Landlords however, are likely to be less keen if they will be obliged to incur expenditure in bringing properties up to a minimum standard as a result of the auction process. It remains to be seen what impact the provisions will have if they are made law. Many may argue that business rates are the key issue that need addressing in order to rejuvenate the high street and nothing much will change until this is addressed. If you have any questions about the points raised in this article please contact info@ts-p.co.uk.