Last month, the Government published the Levelling up and Regeneration Bill (the Bill). Although the Bill has not passed through Parliament yet (and further regulations and guidance is awaited) a key element of the Bill is the introduction of compulsory ‘high street rental auctions’ of certain vacant commercial properties.
Only properties on designated high streets and town centres will be affected. These are streets or areas that the local authority will deem as crucial to the local economy because of a concentration of high-street uses of premises on the street. This may include food establishments, retail shops and offices.
To qualify the property must have been unoccupied for the whole of the previous year or been vacant for at least 366 days out of the previous two years. A “regular presence of people at the property” will be required for the property to be classed as occupied but what exactly this means is not entirely clear and we are hoping there will be further guidance on this point.
In addition, the property must satisfy a “local benefit condition”. This is satisfied if the local authority considers that the occupation of the property for a suitable high-street use would be beneficial to the local economy, society or environment.
If the ‘vacancy condition’ and ‘local benefit condition’ are satisfied, the local authority may serve an “initial notice”, giving the landlord 10 weeks to let the property. Once the initial notice is served, the landlord must obtain the local authority’s consent before it grants a lease or licence to occupy, otherwise the arrangement will be void.
There are some exceptions to this (e.g. when granting a lease pursuant to an Agreement that was entered into before the ‘initial notice’ was served). In addition, the local authority must give its consent to a lease or licence which is for one year or more (without any landlord break rights in the first year), commences within 8 weeks of the initial notice and would lead to the ‘regular presence of people at the property’.
If the property remains vacant eight weeks after the initial notice was served, the local authority can serve a “final notice”.
The service of the final notice commences a 14 week timeframe during which the local authority has the power to run a rental auction for the purpose of finding a tenant for the property. Whilst the final notice is in force, the landlord cannot carry out any works to the property or grant a lease or licence, without consent from the local authority. The landlord has the ability to serve a counter notice to the landlord against the final notice if they believe the property does not qualify, the landlord intends to carry out significant construction works and cannot do so without possession or if the landlord intends to occupy the premises for commercial or residential purposes.
The exact process of how the local authority will determine the successful bidder at auction is not clear as of yet and will require further legislation. The terms of the agreement for lease and / or lease can be decided by the local authority (but taking into account any landlord representations). The Bill does state that the contractual term of the lease will be between one and five years (depending on the length of the landlord’s own interest), that it will be contracted outside of the Landlord and Tenant Act 1954 and it prescribes the types of covenants that must be included in the lease (but further guidance on the exact terms of those covenants is still awaited).
If the Bill is passed, it is still uncertain whether local authorities will utilise their powers. However, if they do businesses and individuals who own property on high streets and in town centres could be heavily impacted and effectively forced to enter into commercial agreements by local authorities.
If you need any assistance or advice on the impact of the Bill please do get in touch.