High street rental auctions: the Government launches a consultation

Summary

The Government has launched a consultation on its proposals for High Street Rental Auctions in England. The proposals will give local authorities the power to auction the rental rights of commercial high street property that has been vacant for longer than 12 months in a 24-months period. The purpose behind this is to tackle the problem of persistently vacant property on high streets. The consultation seeks views on detailed aspects of the High Street Rental Auction policy including the running of the auction process, a proposed new Permitted Development Rights process, disapplication of Minimum Energy Efficiency Standards in this context and the nature of the standardised framework for the agreement for lease and lease arrangements forming part of the process. The deadline for responses to the consultation is 23 June 2023.

The vacancy problem

The Government included provision for High Street Rental Auctions in the Levelling Up and Regeneration Bill introduced to Parliament on 11 May 2022. We reported on the contents of the Bill in this Law-Now (although some aspects have changed since the Bill was first introduced). The Bill is currently at Committee stage in the House of Lords.

This consultation, published on 31 March 2023, provides a 12 week period in which responses can be provided on further details of the framework provided by the Bill.

The Government refers to there being in 2019 about 172,000 vacant commercial properties, of which in 2021 over 8 in 10 were vacant for more than two years and over 1 in 5 vacant for more than four years. The Government is concerned about the impact of this on a place’s economic performance, and tackling this through the regeneration of the high streets is central to the Government’s levelling up agenda.

The proposed High Street Rental Auctions process

Most commercial property on high streets and in town centres will be in scope. However, it will not apply in remote or unconcentrated streets, or areas where there isn’t other property carrying on a typical “high street use” (the Levelling-up and Regeneration Bill (parliament.uk) lists uses that fall under the definition of high street use). Also specifically excluded are heavy industrial property, warehouses and residential property. The local authority will be responsible for designating their high streets and town centres where a High Street Rental Auction could be used. 

If commercial high street property has been vacant for longer than 12 months in a 24-months period, the High Street Rental Auctions process will allow a local authority to find persons who would be willing to take a tenancy of the vacant property, ascertain the rent for the tenancy and compel a property owner to enter into the tenancy.

Local authority’s initial and final notices

The local authority will give the landlord an “initial notice” that it intends to undertake the High Street Rental Auction process in respect of its premises. The landlord will then have eight weeks to find a tenant. If the landlord finds a tenant, it can only enter into the lease with the local authority’s consent - the consent must be given if the lease term is of at least one year and the lease is likely to lead to high street use.

If within the eight weeks period the landlord does not enter into a lease for a term of at least one year for a high street use, the local authority can move to the next stage of arranging the auction by putting the premises under a “final notice” (subject to landlord’s appeal on a limited number of specified grounds). Following the final notice, the landlord is not permitted to grant a lease or licence without the local authority’s approval.

The auction process

The consultation includes a number of questions on the auction process including:

• how successful bidders might be identified; 
• contents of the auction pack (which the local authority is responsible for putting together, but the landlord may commit an offence if it does not supply the relevant information); and
• marketing expectations and requirements.

The standardised agreement for lease and lease framework

The successful bidder will enter into:

• an agreement for lease. The agreement caters for any works that the landlord needs to carry out (see below), and possibly also for tenant’s works; and
• a lease.

In order to reduce costs and improve efficiencies, a standardised framework for the agreement for lease and the lease is being designed to be used for a letting following a High Street Rental Auction.

The consultation explores a number of issues in relation to:

• the agreement for lease - the proposal for the landlord to be required to carry out works to ensure that the physical state and condition of the premises achieves a “minimum standard” and remedies for the tenant if the landlord fails to do so; who bears the cost of such works to the premises (the consultation envisages that the landlord bears these) and other costs of the auction;   
• the lease – the Bill already states that the length of term will be not less than one year and not exceed five years; the lease will not benefit from security of tenure under Part II of the Landlord and Tenant Act 1954; the amount of rent will be determined through the auction process; and the permitted high street use will be prescribed by the local authority. The consultation proposes that there will be a number of fixed items (see paragraph 79 of the consultation), but other provisions will be more flexible such as the service charge regime and tenant’s break rights. There are detailed questions on other terms including subletting, alterations, repair and rent deposits. 

Consideration is also being given to disapplying the Minimum Energy Efficiency Standards for the duration of the lease, to reduce burdens on the landlord.

If following the auction the landlord has not engaged with the local authority, the local authority (on the landlord’s behalf) can enter into an agreement for lease and then a lease with the successful bidder.

Importantly, the use of High Street Rental Auctions is not intended to apply where landlords are actively trying to find a tenant for their premises.

The consultation document includes a flowchart on how the process will work.

New Permitted Development Rights

Where a bidder in the auction proposes a suitable high street use that is not in Commercial, Business and Service Use Class E such as community halls and public houses, or the premises are not in the same Use Class as that proposed by the bidder (and a planning application would usually be required), the Government proposes that a new Permitted Development Right would allow the change of use without the need for a planning application. This would allow High Street Rental Auctions to offer a range of uses as set out in the Bill, dependent on the needs of each high street. The proposal would also allow the premises to retain the change of use after the initial lease period expires, but conditional on prior approval from the local planning authority.

Safeguards for landlords

They include that:

• the Government expects local authorities to make reasonable efforts to contact the landlord to discuss the situation before starting the High Street Rental Auction process; 
• the landlord will be given eight weeks to find a tenant following an “initial notice” from the local authority that it intends to undertake the High Street Rental Auction;
• the landlord will have a right to appeal on specified grounds against the “final notice” where for example the imposition of a lease would be disproportionate, or at odds with the intention of the policy, such as where a redevelopment is planned;
• local authorities will ask the landlord for its preferences on the flexible terms to be included in the agreement for lease and the lease;
• the landlord will have sole direction over the advertised preferred tenant characteristics information and, most importantly, over choosing the successful bidder at the auction;
• the tenant will be required to give a rent deposit;
• the landlord will have its usual legal remedies against the tenant for non-compliance with the lease terms such as forfeiture.   

While there are safeguards and involvement for landlords in the proposed process, some may still regard the proposals as an undue state interference with private property rights.

The Consultation

Here is a link to the Consultation. The Consultation lasts for 12 weeks from 31 March 2023 to 23 June 2023. Responses to this survey must be provided using Citizen Space, an online platform designed for government consultation and engagement at online survey response via Citizen Space