What does the Levelling Up Bill mean for rental auctions of vacant commercial properties?

The Queen’s Speech 2022 introduced the key elements of the Levelling Up and Regeneration Bill.

The Bill proposes “unlocking new powers for local authorities to bring empty premises back into use and instigate rental auctions of vacant commercial properties in town centres and on high streets”. The proposal highlights that 72% of retail sales in 2020 took place in store but vacancy rates on high streets remain high at 13.5%. A 1% increase in vacancy rates is equal to around a 9% fall in prime rental income.

The Bill would enable local authorities to designate a street in its area as a ‘high street’ if it considers the street is important to the local economy because of a concentration of high street uses of premises. If a vacant premises is within a designated area and meets qualifying criteria the local authority would be granted the power to conduct a compulsory rental auction of the premises.

What conditions would premises have to meet to be considered vacant under the Levelling Up and Regeneration Bill?

The premises must meet the vacancy condition, being unoccupied for a year or for at least 366 days during a two year period, and the local benefit condition, that the occupation of the premises for a suitable high street use would be beneficial to the local economy, society or environment.

If the qualifying criteria are met, the local authority can serve an initial notice on the landlord which restricts the landlord’s ability to grant or agree to grant a tenancy or licence without the consent of the local authority. After eight weeks from the day the initial notice took effect, if no tenancy or licence has been granted with consent, a final notice can be served. While a final notice is in force the restrictions on granting a tenancy remain in force in addition to restrictions on the landlord’s ability to carry out works to the premises without consent.

What will landlords be able to do if served a final letting notice under the Levelling Up Bill?

The landlord of the premises in which a final letting notice has been served may give a counter-notice within 14 days from the day the final letting notice takes effect. A counter-notice must state that the landlord intends to appeal and it must specify the permissible ground on which the appeal would be brought. There are seven grounds which include the vacancy condition not being met; the premises not being suitable for the use specified in the final letting notice; the local authority not giving consent to a proposed tenancy; or the landlord intends to carry out work or occupy the premises. The landlord may appeal against the final letting notice to the county court under the ground specified in the counter-notice within 28 days from the date the counter-notice was received by the local authority. The county court must revoke or confirm the final letting notice.

The local authority may arrange for a rental auction to be carried out if a final letting notice is in force, and 42 days have elapsed beginning with the day the notice took effect and no tenancy has been granted or agreed with the local authority’s consent. Section 166 grants the power to contract for tenancy where a successful rental auction has taken place. The contract is entered into by the local authority and successful bidder and has effect as if it was entered into by the landlord instead of the local authority.

The Bill grants the local authority power to require any person who has an interest in the land to give information about the premises. It also grants the local authority power to enter and survey the land. A person may receive a fine if they fail to comply or give false information.

The Bill is in the House of Commons having recently completed the report stage, so we will wait with interest to see how it progresses. If you have any questions about the potential impact of the Bill, please get in touch info@ts-p.co.uk.