Summary
High street rental auctions of vacant high street premises have been trailed for a long time and were originally proposed by the previous Conservative Government. On 11 November 2024 the Labour Government laid before Parliament the regulations for High street rental auctions (HSRAs): The Local Authorities (Rental Auctions) (England) and Town and Country Planning (General Permitted Development) (Amendment) Regulations 2024. They come into force on 2 December 2024 and apply to England only. HSRAs will allow local authorities to tackle persistently vacant premises in city, town and village centres by putting leases of those premises up for auction; a so-called “right to rent” commercial premises for businesses and community groups. While this may improve the affected areas, it may have an adverse impact on the owners of vacant commercial premises on the high street including some loss of control over the premises.
Context
The Conservative Government’s consultation on HSRAs described the prolonged vacancy of shops and buildings as a “blight on our high streets”, stating that empty shops ruin the “look and feel of an area”, becoming targets for vandalism, graffiti and anti-social behaviour. Tackling this problem by regenerating high streets and cracking down on this anti-social behaviour was at the heart of the previous government’s levelling up agenda. The Levelling-up and Regeneration Act 2023 (Act) will give a local authority powers to arrange for a rental auction to be carried out in respect of qualifying high-street premises, with the objective of improving the high street. The Conservative Government set out its proposals for the powers in May 2024 (see High Street Rental Auctions: the Government’s response).
The Regulations
The Local Authorities (Rental Auctions) (England) and Town and Country Planning (General Permitted Development) (Amendment) Regulations 2024 provide the detail on the local authority’s powers under the Act. There appears to have been little, if any, public consultation on the specifics of the Regulations and very little time has been allowed for preparations before the Regulations come into force on 2 December 2024 (just 3 weeks after they were laid before Parliament). It will probably take most local authorities some time before they are in a position to implement the Regulations.
On 21 November there will be an event in Wolverhampton, to which stakeholders are invited to attend, at which the powers will be explained in greater detail and early adopter local authorities will be announced. These local authorities will champion HSRAs by, it is stated, immediately taking action and working with the Government to provide strategic guidance and best practice advice to other councils. We would expect the publication of further guidance and advice on how the HSRA regime will operate. The Government has committed to over £1m in funding to support the auction process (which does not seem an especially large sum for what is envisaged).
HSRA – which premises are impacted?
In order for vacant premises to be within the HSRA process, the premises must satisfy the following conditions:
- Designation: it must be within a ‘designated’ high street or town centre. The local authority must publish and consult on a designation proposal. Heavy industrial, warehouse and residential premises are not caught.
- Usage: it must be a ‘high street use’ - for example, as a shop, restaurant or offices, or for public entertainment or recreation.
- Vacant: it must be ‘vacant’ – meaning unoccupied for the whole of the previous year, or on at least 366 days during the previous two years.
- Suitability: the local authority must consider the letting for a suitable high-street use to be of benefit to the local economy, society or environment.
The HSRA Process
The Regulations set out the procedure to be followed before the HSRA can take place: this includes the local authority serving an initial letting notice on anyone who has an interest in the relevant premises and also the local authority instructing a qualified person to survey the premises, to prepare a schedule of works needed to bring the premises up to the minimum standard (which basically means safe, secure and with any significant occupational risks removed or managed).
The auction period cannot begin until the local authority has served a so-called final letting notice and the deadline for an appeal by the owner/landlord against the notice has expired without the premises being let. The auction period lasts for 12 weeks. The Regulations set down in specific detail what needs to be done including the obligations of the local authority and landlord over the first 10 weeks. The landlord can potentially be fined if it fails to comply with obligations to provide information (following the position set down in the Act). The marketing period is in the 5th to 10th weeks.
The landlord may choose to accept any of the valid bids as the successful bid, but there is a tight timeframe for doing so. If the landlord fails to do so, the local authority can still choose to accept a bid (broadly, the bidder offering the highest annual rental value for the premises).
The rental auction is concluded on the exchange of the tenancy contract. There is a draft standard tenancy contract and terms of the tenancy included in the Regulations, together with the forms of the standard notices and counter notices. The local authority may grant the tenancy if the landlord fails to do this and there are provisions in the Act in relation to this.
The local authority may require the successful bidder to pay the legal costs incurred by the local authority in the preparation of the auction pack including the tenancy contract and tenancy agreement; the local authority’s search fees; and the costs of carrying out a survey.
Permitted development
The Regulations also amend the Town and Country Planning (General Permitted Development) (England) Order 2015 to provide for temporary planning permission for a change of use of the relevant premises to a suitable high-street use for the duration of a tenancy granted following the rental auction. This permitted development right provides a tool to support the HSRA policy; applying to qualifying high-street uses and providing for the change of use that the local authority determines is suitable. This serves to ensure bidders are free from the difficulty of knowing whether a planning application for a change of use will be successful. The premises revert to their former use at the end of the tenancy.
Economic reality
There will always be some vacant shops on a high street, as part of natural business churn and it is hoped that these plans will help to regenerate the high street in England and bring long-term empty premises back into use.
But, in reality, there are often valid reasons why shops remain empty in the long term: for example, because it is expensive to redevelop or restore a dilapidated building, or because there is no demand for the smaller retail units that we are used to seeing on the high street. It remains to be seen whether the high street rental auction process will actually help to regenerate the high street and increase confidence in local town centres across England.
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