‘Going once…going twice…’ – a glance at the proposed High Street Rental Auction Process

Background

The Levelling-up and Regeneration Bill (“the Bill”) was introduced to Parliament on 11 May 2022 and is currently under review by the House of Lords. The Bill contains a wide range of legislative changes and is designed to further the Government’s levelling-up agenda and to accelerate community regeneration.

Of particular note for local authorities, as well as commercial property owners, is the proposed high street rental auction process. If the Bill is passed as drafted, new powers would be conferred to local authorities to hold rental auctions for vacant commercial properties in high streets and town centres. The rationale for such process being the Government’s response to the perceived ‘prolonged vacancy of shops and buildings’ which, in the Government’s words, are a ‘blight’ on high streets across the country.

The Government is currently running a public consultation exercise (set to close on 23 June 2023) to explore how the wider auction process would work in practice, considering: lease terms, costing, the application of energy regulations (MEES) and the proposed procedure.

Proposals

Whilst the mechanics of the auction process consists of granting state bodies powers to manage private property, it is not a simple one and requires several preconditions to be satisfied prior to the exercise of such powers. Such preconditions are summarised as follows:

• Qualifying Property – the property must be located in an area designated by a local authority as a ‘high street’ or ‘town centre’;
• Usage Condition – the local authority must determine that the property is suitable for use that is ordinarily found on a high street (e.g. shops, restaurants, cafes, pubs, entertainment and recreation spaces);
• Local Benefit – the area must be important to the local economy due to the concentration of properties undertaking typical high street uses (as outlined above) and must be beneficial to the local economy, society or environment; and
• Vacancy Condition – the property must have been either: (i) vacant for more than 365 days or (ii) at least 366 days in the previous two years

If the above conditions are met, the local authority can elect to serve an Initial Letting Notice (“ILN”) on the landlord of the property, which will expire after 10 weeks. During the notice period, the landlord is forbidden from granting or agreeing to grant leases or licences of the property without the written consent of the local authority. Subsisting property contracts entered into prior to the service of an ILN are not affected.

Eight weeks after the ILN is served, the local authority can serve a Final Letting Notice (“FLN”) on the landlord, which expires after an additional 14 weeks. Whilst this notice is in effect, a local authority can arrange a rental auction to find a willing party to take a tenancy of the property, and to determine the consideration the prospective tenant is willing to pay. A landlord is permitted to serve a counternotice, identifying grounds for appeal (such grounds include: intended occupation, carrying out of works to a property and redevelopment of the property).

Following a successful auction, the local authority can contract with the successful bidder on behalf of the landlord to enter into an agreement for lease, before requiring the landlord to grant a tenancy with prescribed statutory terms (e.g. length of 1-5 years, obligations for tenant to repair, forfeiture provisions and yielding up requirements).

Commentary

The proposals have some similarities with compulsory purchase orders, in that state bodies would have a statutory right to compel private landowners to do something with their property without their consent.

Whilst the Government’s intended outcome of filling vacant high street units and regenerating town centres is laudable, the proposals have attracted a degree of concern from landlords keen on preserving their right to deal with their property as they please. Superior landlords and commercial lenders are also likely to feel some concern, as their rights to deal with property would be overridden. It is a common feature of most leases for superior parties to have the ability to consider a new tenant – the proposals would pass that power to local authorities.

On the other hand, local authorities with prospective regeneration plans may see the proposals as an opportunity to review existing properties within their town centres and high streets and identify possible areas for regeneration. For the process to be successful, there will evidently need to be a level of take up from potential tenants and local authorities may therefore consider measures to promote the auction process as part of their regeneration plans.

The caveat to all of the above is of course that the Bill remains under legislative scrutiny and could ultimately change (or even be scrapped) once the consultation has finished and the House of Lords has finalised its review. What is certain is that Sharpe Pritchard will be keeping a close eye on the passage of the Bill.

How can we assist?

Sharpe Pritchard’s real estate department offers advice and guidance to local authorities and private landlords across the full spectrum of property issues. If you would like to discuss any issues raised in this article or connected topics (e.g. regeneration, development or commercial leases) please contact James Nelson (jnelson@sharpepritchard.co.uk) on 0207 405 4600.

This article is for general awareness only and does not constitute legal or professional advice. Law and guidance relating to the said Bill is continually being updated and the law may have changed since this page was first published. If you would like further advice and assistance in relation to any issues raised, please contact us today by telephone or email.