Summary
Following the coming into force of the legislation for high street rental auctions on 2 December 2024, the Government has now published its non-statutory guidance on the operation of this new regime. Property owners will be interested to see the detail of and approach to high street rental auctions, which may have an adverse impact on their control of vacant commercial premises on the high street.
Detailed guidance on high street rental auctions[1]
In our Law-Now Compulsory powers to take control of empty high street properties we commented on the new regulations for high street rental auctions (HSRA) The Local Authorities (Rental Auctions) (England) and Town and Country Planning (General Permitted Development) (Amendment) Regulations 2024 that had been laid before Parliament. The regulations came 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.
On 2 December 2024 the Government published non-statutory guidance High street rental auctions: Non-statutory guidance - GOV.UK which provides important further details on how HSRAs will operate. Here are some key points worth noting about the guidance (and some of the points refer to aspects of the HSRA process that are mentioned at Compulsory powers to take control of empty high street properties):
- The guidance explains HSRAs in detail from start to finish and should be used to guide interested parties through the process. It is aimed at local authorities, commercial landlords and their lenders, businesses and community groups and commercial agents.
- There is a helpful process flowchart and detailed statement of the specific timeframes for the notice period and auction period and what needs to be done, when. It’s worth noting that owners have a “grace period” of 8 weeks to enter a satisfactory tenancy from when the local authority serves an initial notice on them (and there are restrictions on lettings during that period and during the final notice period).
- The HSRA process is expected to take 22 to 24 weeks from initiation to completion.
- When considering whether a HSRA will be appropriate, the local authority, among other matters, should note the required time and resource for the process and consider applying for the so-called “new burdens payment”, to cover the cost of implementing a rental auction per property. The Government expects the total cost per HSRA to be £5,223. The availability of funding may be an important factor for local authorities in deciding whether to action HSRAs.
- There are a number of preliminary actions that a local authority must take before beginning the HSRA process including:
- designating a street or area where a HSRA can be used;
- satisfying the vacancy condition (it must be ‘vacant’ – meaning unoccupied for the whole of the previous year, or on at least 366 days during the previous two years) and local benefit condition (the local authority must consider the letting for a suitable high-street use to be of benefit to the local economy, society or environment); and
- surveying the premises to assess the suitable high street use and/or the works needed for the premises to reach the minimum standard (which basically means safe, secure and with any significant occupational risks removed or managed).
- HSRAs will not be suitable for all high street premises; for example, large former department stores may be subject to long-term, complex redevelopment plans which may be negatively impacted by being subject to inclusion.
- Local authorities should work proactively with landlords to bring properties back into meaningful use.
- HSRAs may help to fill premises where lender’s conditions would otherwise limit a tenancy taking place at market rent. The tenancy contract, and the grant of the tenancy granted pursuant to such a contract (via HSRA), are deemed to have been entered into or granted with the express consent of any superior landlords and mortgagees (under Section 208, Levelling Up and Regeneration Act 2023). A point to note in particular for lenders.
- It is a criminal offence (the potential of a fine up to level 4 on the standard scale, with level 4 currently set at £2,500) for a landlord not to respond to requests for information about premises made by a local authority without reasonable excuse, or to give false information in response to such requests (Section 210(7) and (8), Levelling Up and Regeneration Act 2023).
- The guidance includes templates and forms of letter for use during the HSRA process.
- The successful bidder at auction will enter into two legal agreements with the landlord. The first is the tenancy contract, which governs the landlord’s required works prior to the tenancy commencing, and the second is the tenancy itself which is granted following completion of the landlord’s works.
- The legislation provides that the local authority has the power to grant the tenancy contract or the tenancy itself as though they were the landlord. In entering into the tenancy contract or the tenancy itself, the local authority must act in its own name, but with an indication that it is acting so as to bind the landlord rather than itself. The local authority must also provide a signed copy of the contract or tenancy to the landlord as soon as possible after entering into it.
- A tenancy entered into pursuant to HSRA will have a term of not less than one year, but it will not exceed 5 years. The tenancy will not benefit from security of tenure under the Landlord and Tenant Act 1954.
Conclusion
Property owners with vacant commercial premises on the high street should make themselves aware of the new high street rental auction process. The process is complex and detailed and, while engagement between owners and local authorities is encouraged to bring properties back into meaningful use, owners will lose some control over their properties.
[1] This article contains public sector information licensed under the Open Government Licence v3.0.
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