Can Our High Streets be Saved by High Street Rental Auctions?
What is a High Street Rental Auction?
On the 2 December 2024, the Government brought into force legalisation which granted Local Authorities the power, under Part 10 of the Levelling-Up and Regeneration Act 2003 (“the Act”), to enforce High Street Rental Auctions (“HSRAs”).
In summary, Local Authorities can now force landlords to let out their properties which are on a designated high street and have been unoccupied continuously for a whole year, or for at least 366 days in the last 24-month period.
What is the aim of HSRAs?
Given that 1/7 high street shops are currently vacant nationwide, the aims of the legislation are as follows:
- Bring life back into the high streets by reducing long-term commercial vacancies;
- Drive local opportunities, jobs, and growth;
- Enhance community spaces; and
- Provide a simplified and fair way for businesses to secure prime location properties.
What properties does it apply to?
It will apply to premises which are for “high-street use”, and which are deemed to be “qualifying high-street premises”. The relevant definitions are laid out in s.192 of the Act.
- “Qualifying high-street premises” are premises that the local authority considers suitable for “high-street use” and are situated in a designated high street or town centre within that local authority’s area.
Note that the local authority has the power to designate a street as a high street and/or a network of streets as a town centre if they consider them to be of importance to the local economy because of a concentration of “high-street uses”.
- Premises will not be a “qualifying high-street premises” if they are, or when last used were, used wholly or mainly as a warehouse.
How will this affect landlords?
1. If a property is subject to a HSRA, then the landlord is obliged to bring the property up to a set standard of Minimum Energy Efficient Standards. The cost of doing so will fall on the landlord.
2. However, the local authority is the one responsible for preparing the auction pack, marketing, and paying the auction fees. Furthermore, the successful bidder will likely need to pay for surveys, searches, and the legal costs for drafting the lease.
3. It is a criminal offence for a landlord not to respond to requests for information about the property made by the local authority without reasonable excuse, or to provide false information in response to requests.
4. Subject to how many local authorities take advantage of the scheme, Landlords may lose control over some of their properties for the following reasons:
a) Tenancies entered into will have a minimum term of 1 year, and a maximum term of 5 years;
b) Landlord cannot select their own tenants or set rental values as the Act and Regulations prescribe the terms of the lease, but security of tenure under the Landlord and Tenant Act 1954 is excluded from the leases, which means that any lease granted will not automatically renew;
c) Although the leases are standardised, successful bidders might instruct a retail surveyor to negotiate additional clauses to be included; and
d) If a landlord does not to participate in the process, the local authority can enter into an agreement for a lease which will be binding on the landlord. Therefore, a HRSA can be completed without the landlord’s consent and approval.
5. At the start, the local authority must serve notice on the landlord which gives the landlord time to participate. During this 10-week period, the landlord’s ability to deal with the property is restricted subject to local authority’s consent which mitigates the chance of sham leases being created.
6. Landlords do have a right to appeal the local authority’s final notice by serving a counter-notice stating which of the seven grounds specified in the legislation they would rely on.
7. It may benefit landlords who do not wish to spend time and money searching for tenants themselves. Whilst the lease terms might be predefined, it would reduce the cost of prolonged negotiations over terms.
Will HRSAs work?
There is a question whether local authorities will have enough time and resources to exercise their newly granted powers. Additionally, HSRAs only work if there are potential tenants / businesses who are willing to bid on the vacant properties.
Similarly, there might be good reason as to why the property was vacant for a substantial period. For example, if there is a lack of footfall by the property, then whilst the leases may be awarded for 5 years, tenants might not last that long. The overall process is intended to take between 22-24 weeks, which means we may see HSRAs in action very soon.
The efficiency of HSRAs ultimately depends on how much they are enforced, and what the local public think of the new businesses which might take to our high streets.
Talk to us
If you are a landlord and would like advice on whether this new legislation applies to you, and if so, how to comply with the new obligations, then please contact the Property Litigation Team. You can contact the team by calling 0345 872 6666 or by completing our online enquiry form.