Some High Street shops are boarded up – but not for much longer?
Local Authorities have been granted powers to put leases up for auction with the aim of restoring life back into Britain’s struggling high streets.
For many towns and cities, their high streets have seen better days and the Government’s desire to regenerate these important spaces will be shared by many. One of the measures is the introduction of High Street Rental Auctions (“HSRAs”). On 2 December 2024, HSRAs came into force via The Local Authorities (Rental Auctions) (England) and Town and Country Planning (General Permitted Development) (Amendment) Regulations 2024 (following Part 10 of the Levelling-up and Regeneration Act 2023 coming into force last year).
As the Government press release states, HSRAs will “allow local leaders to tackle persistently vacant properties in the city, town and village centres by putting the leases up for auction.” In practice, this means that local authorities will be able to hold auctions of vacant premises on the high street without requiring the consent of commercial landlords, owners or other interested parties. The idea is that this will lead to fewer boarded up units and greater vibrancy injecting life into this country’s urban hubs.
For some commercial landlords, this might cause raised eyebrows. However, the process from start to finish is long and unwieldy.
Qualification criteria
Firstly, the premises must be situated in designated high streets and town centres. A local authority may designate a street in its area as a high street, or an area as a town centre if it considers that the street or area is important to the local economy.
Secondly, the use of the premises is important. The types of premises caught are as follows:
- shop or office;
- provision of services to persons who include visiting members of the public;
- restaurant, bar, public house, café or other establishment selling food or drink for immediate consumption;
- public entertainment or recreation;
- communal hall or meeting-place;
- manufacturing or other industrial processes of a sort that can (in each case) reasonably be carried on in proximity to, and compatibly with, the other uses.
It is worth noting that warehouses are expressly excluded.
Thirdly, the premises need to be vacant and have been vacant for the previous year or have been vacant for 366 days over the previous two years (“the vacancy condition”).
Fourthly, the premises need to meet the “local benefit condition” which requires that the occupation of the premises would be beneficial to the local economy, society or environment.
Process
Once the local authority is satisfied as to the above, it may serve an “initial letting notice” in the prescribed form. An initial letting notice lasts for a period of ten weeks unless it has either been withdrawn or a final letting notice has taken effect. The impact of the initial letting notice is that the landlord may not grant a new tenancy or licence of the premises (or enter into any other arrangement for occupation) without the consent of the local authority. The consent will be conditional on the proposed period of occupation beginning within eight weeks of the initial letting notice, lasting for at least one year (and is not subject to a landlord/licensor-only break option within that one year), and that the local authority is satisfied that the occupation is for one of the uses above.
A “final letting notice” may be served only if an initial letting notice is in force, eight weeks have elapsed from that initial letting notice, and either:
i) no tenancy/licence, etc. has been entered into with the local authority’s consent; or
ii) that the proposed occupation is consistent with the local authority’s power to contact (more below).
The final letting notice lasts for 14 weeks unless extended. Again, the landlord may not grant a new tenancy or licence of the premises (or enter into any other arrangement for occupation) without the consent of the local authority. Further, the landlord is not able to carry out any works to the premises, including alterations and removal of fixtures and fittings, without the local authority’s consent.
The landlord is able to serve a “counter notice” within 14 days of service of the final letting notice, which conveys the landlord’s intention to appeal, specifying a ground. The grounds include the vacancy condition not being met, the premises cannot reasonably be considered suitable for a high-street use, the local authority could not have reasonably considered that the local benefit condition was met, the local authority had erred is failing to give consent to a proposed tenancy, the landlord intends to carry out significant construction, demolition or reconstruction works requiring possession of the premises, the landlord intends to occupy the premises or use as a residence.
If the local authority does not withdraw its final letting notice within 14 days following service of the counter notice, the landlord may appeal to the county court within 28 days of the date of service of the counter notice.
Auction
If a final letting notice remains in force, has not been appealed, and no new tenancy or licence has been granted, then the local authority may arrange for a rental auction to be carried out.
Before doing, there are a number of preliminary steps, and some of which are quite onerous. One such step is the requirement to instruct a survey of the premises to check that minimum requirements are met (for instance, fire safety). Landlords will be concerned to note that there is no express requirement for premises to be let to minimum energy efficiency standards which could put the landlord in danger of enforcement action. Further, there are strict timetables for compliance in respect of the provision of replies to enquiries, provision of documents, etc. that is needed to assist the local authority with preparing the auction pack.
The local authority must serve the auction pack on the landlord. There is then a marketing period taking place between weeks 5 and 10, during which period bids are received and shared with the landlord. The landlord may choose to accept any of the bids but, if fails to do so, the local authority can choose not to accept any bid or accept the highest annual rental value for the premises as the successful bidder, or who it is reasonable practicable to accept as the successful bidder.
Following a successful bid, the local authority may contract for a tenancy provided that the final letting notice remains in effect, the period of 42 days following service of that notice has elapsed, the rental auction has been carried out and no new tenancy/ licence has been entered into.
The contract for the tenancy must set out the terms of the agreed tenancy and specify other required pieces of information. The new tenancy shall include;
- being contracted out of the Landlord and Tenant Act 1954;
- a term of 1-5 years;
- a rent deposit of either £1,000 or three months’ rent, whichever is higher;
- repair obligations limited to a schedule of condition;
- use is to be what the local authority considers suitable for “high-street use”
In relation to use of a landlord’s property and for the purpose of the auction lease, the General Permitted Development Order has been amended to allow the existing use of a high street or town centre property to be changed to a different (suitable) high street use which will be determined by the local authority.
If the local authority has entered into a contract and the landlord fails to grant a tenancy as required by that contract, then the local authority may step into the landlord’s shoes and grant the tenancy. Further, any superior lessor or mortgagee is deemed to have consented to the new tenancy.
Other powers
The local authority has additional powers, including the power to require provision of information or the power to enter and survey land (with compensation payable for any damage caused).
However, it remains to be seen how effective these powers will be. Local authorities are already under resourced and have to make difficult decisions as to where their attention ought to be prioritised. The funding some central Government is provided is believed to be £1 million which might not stretch very far. Therefore, there is a risk that these powers could be underutilised.
There is also a question as to its efficacy. Landlords are eager to stay clear of void periods as they stand to lose rental income and possibly become liable for business rates. Landlords will therefore be on the lookout for tenants – are local authorities better equipped at filling those voids?
Initially, we can expect to see some early adopters championing the use of HSRAs and its usage might develop organically as feedback is gathered. However, it remains to be seen whether these powers will be exercised on a large-scale basis or whether they will be reserved for the most egregious cases in the most vacant high streets.
For landlords who are proactive and communicative, it seems unlikely that these provisions would be exercised. The exercise is more likely to be followed where communications between landlords and local authorities have broken down.
Please contact Samuel Lear, Sarah Keens or your usual Charles Russell Speechlys contact, if you have any queries.
