From December 2024 local authorities in England have the power to let vacant town centre and high street shops. These new powers introduced under the levelling up legislation are known as high street rental auctions.
What properties are affected?
Those formerly in “high-street use” which is defined in Section 192 of The Levelling-Up and Regeneration Act 2023. The list includes a shop or office, premises used or last occupied as a restaurant, bar, café, communal hall, and for the provision of services to people including the public. The property needs to have been vacant for at least one year or empty on at least 366 days of the previous two years.
Levelling-up and Regeneration Act 2023
Why have these auctions been introduced?
In 2023 a consultation on high street rental auctions was commissioned by the then Government, recognising that high streets were being negatively affected by online shopping and larger out of town retail parks. This had led to significant empty shops on the high street, with the corresponding loss of footfall causing other retailers to relocate. Our high streets were on the decline, and auctioning empty premises was considered a means of stemming the decline.
The introduction of the rentals auctions is intended to rejuvenate high street and town centres, to reduce empty shops and to generate more income in the form of business rates for occupied premises. The local authority must satisfy itself that the letting auction is for local benefit.
What is the process for a high street rental auction?
A local authority is required to serve a notice on the landlord of the qualifying high street premises, having identified it as being suitable for auction due to its location and high street use. The landlord is invited to participate in the auction process, should they fail to arrange a re-letting within 8 weeks. If the landlord does not find a tenant independently in that time frame, after 8 weeks from the initial notice, a final notice can be issued. During the notice periods, a landlord is restricted in how they can deal with the premises, without the local authority’s prior consent.
Is the landlord’s consent required?
Not necessarily, no. If a landlord refuses to participate in the property auction, then a local authority does have the power to ultimately enter a lease which will bind the landlord.
Are there set terms which apply to high street rental auction leases?
Yes, these are set out in the Levelling-Up and Regeneration Act 2023 and Regulations implementing them but in summary the following parameters must apply:
- Term – of between 1 and 5 years.
- Rent – to be payable monthly in advance, the amount determined by the bids received.
- Deposit – the higher of £1,000 or the equivalent of 3 months’ rent.
- Alterations – a fit out can proceed without the landlord’s consent (for example, if they are refusing to participate in the process).
- Use – a use that has been proposed by the bidder and which the local authority deems appropriate for the high street.
Will a tenant under a high street rental auction lease benefit from security of tenure?
No, Part II of the Landlord and Tenant Act 1954 will not apply to such a lease.
Can a landlord appeal their property being auctioned under the 2023 Act?
Yes, a landlord can appeal a final notice. To be successful, the landlord will need to rely upon 1 of 7 grounds of appeal. Where a landlord doesn’t appeal or the appeal is unsuccessful, the auction can proceed. The grounds of appeal are set out in Part 1 of Schedule 20 to the Act. These include:
- The vacancy condition was not met when the initial letting notice was served.
- The premises cannot reasonably be considered suitable for the use identified in the final notice as suitable high street use.
- No authority giving reasonable consideration would have concluded that the local benefit condition was met.
- The landlord intends to carry out substantial works which they cannot reasonably do without retaining possession.
- The landlord themselves intends to occupy the premises for the purposes of a business or as a landlord’s residence.
- The local authority failed to give consent to a letting during the initial notice period and should have consented.
Who will be responsible for the auction pack and professional fees?
The local authority will prepare the auction pack, but it is anticipated the landlord will provide replies to enquiries; EPC’s ,fire and electrical safety certification, etc to facilitate the marketing and letting. Local authorities will look to recover many of the costs associated with the legal agreement and auction from the successful bidder/tenant.
Will high street rental auctions be a success?
It is too early to tell. The legislation is certainly controversial in so far as it takes power away from landlords and can limit their freedoms in relation to their private high street property investments. However, its success will depend upon prospective tenants coming forward to bid for a unit on the high street. Even a term of 1 year may feel too much of a commitment to a small start-up. However, a lack of interest in auction premises could secure a bidder a lease of otherwise attractive/central real estate at a very low rent.
If you are a local authority and seek advice on implementing high street rental auctions, or you are a landlord who has received an initial notice, we can provide advice to you. Get in touch with our Property Litigation team.