What do landlords and tenants need to know about new local authority powers to let empty commercial properties?

On 26 October 2023, the Levelling-Up and Regeneration Bill (‘the Act’) received Royal Assent as part of the Government’s aim ‘to deliver a revitalised high streets and town centres’. The Act gives local authorities up and down the country powers to force commercial landlords to let their property.

The new legislation will enable local authorities to offer short-term leases of qualifying commercial units via an auction if they are vacant for longer than 12 months. The finer details will need to be set out in new regulations which are still to be drafted. The Act anticipates a four-stage process.

Stage 1: Designation

The new auction powers apply to commercial premises located in an area a local authority has designated as suitable for high street use. These cover any uses within Use Class E (retail, restaurants, offices etc.), but not warehousing or residential.

The local authority will then be required to make available to the public a list and map showing the designated areas and streets. This will make it easier for prospective tenants to locate available properties.

Stage 2: Initial letting notice

Once designated, the local authority serves an initial letting notice subject to the following:

1. Vacancy – the property is unoccupied for a continuous period of 12 months or 366 days in the last two years
2. Local Benefit – the occupation of the property would add to the local area and benefit the local economy.

The conditions are widely drafted, allowing plenty of scope for the local authority to issue an initial letting notice. This initial  notice allows the landlord to let the property before the auction process is enforced.

Following receipt of a notice, the landlord has 10 weeks to enter into a satisfactory tenancy, subject to the local authority’s consent. The landlord cannot let the property without the local authority’s consent during this period.

Stage 3: Final letting notice

If the property remains vacant following the initial letting notice, then the local authority may serve a final letting notice. This must be done before the initial letting notice expires, but no sooner than 8 weeks from the date of the initial notice.

Landlords then have 14 days from the date of the final notice to serve a counter-notice to appeal stating one of the grounds for appeal. During those 14 days, the landlord may not let the property or carry out works without consent. If the appeal is successful then the process stops.

The final letting notice period is 14 weeks and during that time, the local authority may hold a rental auction to find a tenant for the property. The local authority must specify a suitable use for the property.

The final details of the actual auction process are still to be determined. However, the consultation proposed that there would be:

1. No reserve on price or rent
2. Sealed bids
3. The landlord would have the final say on the successful bidder.

Stage 4: Power to contract to let

The final stage deals with the local authority’s grant of a lease of the property on behalf of the Landlord. This is subject to the following conditions:

1. 42 days have passed since the final letting notice
2. The auction has concluded
3. The final letting notice has been served and is valid
4. The landlord has not agreed another approved letting.

The form and terms of the letting arrangement have not yet been set out, but the proposal is to use a standardised lease/letting agreement. This will ensure that the parties are aware beforehand and to speed up the process. The basic terms envisaged are:

1. A term of at least one year, but no more than 5
2. Outside of the protection of the Landlord and Tenant Act 1954
3. Rent as determined in the auction
4. Any superior landlord or mortgagee consent is deemed granted
5. Rented for the use as designated in the pre-auction conditions.

High Street Rental Auction flow diagram from the Government Consultation Document

The high street auctions legislation is in force, but as mentioned above, the finer details contained in the secondary legislation are still to be revealed. Landlords who have commercial premises should assess their position, as properties will automatically qualify for auction if they meet the above criteria.

This also presents an opportunity for tenants to acquire leases of previously unavailable vacant premises. It will certainly be interesting to see which local authorities take advantage of these new powers. If you are a landlord or tenant who has any questions about this topic please get in touch.