Commercial units soon to be compulsorily auctioned by local councils

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A Bill covers aspects of local democracy and constitutional arrangements along with many aspects of local town and country planning, plus the imposition of an infrastructure levy.

Section 8 of this Bill is of particular interest to commercial landlords with retail premises, in certain designated areas, where local authorities are to be given powers to re-let vacant high street premises.

Auction powers are to be given to local authorities over vacant high street commercial premises, predominately shops. The Bill is said to underpin the UK Government’s levelling-up agenda and will give local authorities greater direct powers to help regenerate their local areas.

The new auction provisions are aimed at re-invigorating high streets and town centres by enabling local authorities in designated areas to take over from landlords and re-let their vacant commercial premises through rental auctions, regardless of any intentions the landlords may have.

The Bill was first published in May this year and the Levelling Up and Regeneration Bill 2022-2023 is currently being debated in the House of Commons (3^rd reading) before it is passed to the House of Lords.

If passed, the Bill will under its Section 8 grants new powers to local authorities to hold compulsory auctions of long-term vacant high street premises in nominated high streets and town centres in England.

What are designated areas?

A local authority will be empowered to designate a street or an area as being important to the local economy if there’s a concentration of high street uses. There’s a wide range of high street uses as defined in the Bill including shops, offices, restaurants and even light industrial premises, but excluding warehouses.

Once an area has been designated, any long-term vacancy of a unit will be vulnerable to local authority control, that’s if the unit has been vacant and the landlord has failed to re-let for a certain period of time. The authority can intervene if it considers re-occupation would be beneficial to the public good, to the local economy, society or environment.

How are vacancies defined in the Bill?

A commercial premise is defined as vacant if it has been unoccupied for one year or, at least 366 days in the last two years. Occupation is defined as: “the regular presence of people at the premises” but as the definition stands questions remain as to how this will be interpreted into a practical everyday test?

Would temporary storage be an accepted use?, what about pop-up shop used under temporary licences? It seems at first sight there could be many loop-holes with this.

To what properties would rental auction powers apply?

The auction powers will only apply to ‘qualifying properties’, being those situated in an area designated by the local authority as a ‘high street’ or ‘town centre’ (in accordance with requirements contained in the Bill) and which meet the following criteria:

1 – Suitable for high-street use – the local authority must consider that the property is suitable for a ‘high-street use’. This categorisation will include shops, offices, restaurants and public entertainment spaces. In their process of assessing suitability, local authorities must have regard to any works or fit-outs that a landlord would be required to carry out or an ingoing tenant would do to prepare a unit prior to occupation.

2 – Vacancy condition – the property must have been continuously vacant for more than one year or for 366 days in a two year period.

3 – Local benefit condition – the local authority must consider that occupation of the property for a suitable high street use would be for the public good, beneficial to the local economy, society or environment.

How are the premises identified?

It doesn’t take much thought to realise that problems might arise with split and mixed use premises. Shop premises often have upper parts used as offices or residential accommodation. It would seem that local authorities will be allowed to specify a part of the building to be rental auctioned, for example a ground floor street facing retail unit with accommodation above could be divided and only the ground floor rental auctioned.

How does a rental auction procedure work?

There is a two stage process that a local authority must go through to notify a landlord that it intends to proceed to a rental auction with a qualifying property. The landlord will have a right of appeal. This will be during the second stage notice period, including where the landlord intends to occupy the property itself, or to carry out substantial renovation works or to redevelop the property.

The government will publish further regulations and guidance on how such an auction would proceed in practice. Currently, no guidance has been given as to how a bidder may be deemed to be successful.

What will be the terms of a tenancy?

It is proposed that a rental bidder deemed successful will negotiate with the local authority, the specific letting terms in an agreement for a lease, this ‘having regard’ to the landlord’s representations, before powers requiring the landlord to grant the lease on those terms.

The local authority would have the power to require a landlord to carry out works before the start of a tenancy, The Bill will set out certain terms to be included in a tenancy, but details of these will be left to be covered by additional regulations.

For example, mandatory terms would include include:

1 – the tenancy term for a minimum of one year to a maximum of five years

2 – repairing obligations will fall on the tenant, to repair and insure the property

3 – definition of circumstances in which the tenant may (or may not) dispose of its interest

4 – Provisions will be made out for when a landlord may forfeit or terminate the lease

5 – there will be a requirement for the tenant to hand back the property with vacant possession at the end of the term.

6 – The tenancy will be excluded from security of tenure under the Landlord and Tenant Act 1954 Part2, and consent to the tenancy will be deemed to have been granted by mortgagees and superior landlords.

7 – The Bill considers the use of a model lease agreement for these compulsory lettings and guidance will be issued for a co-operative process between local authorities, landlords and tenants

The Levelling up and Regeneration Bill Bill introduces a new concept in local authority control, effectively taking new compulsory powers to re-let a landlord’s premises. By accomplishing something a landlord has been unable to do for itself, the theory is that the authority’s actions will promote the regeneration of its high streets and town centres.

The provisions of this Bill will be of concern to landlords who have been unable to find what it deems as suitable tenant in the specified time period. Letting commercial premises, finding suitable tenants, can often take a considerable period of time. Landlords would be concerned about being railroaded into letting to what they deem to be unsuitable tenants and uses.

A further concern would be the possibility, given that many or most existing retail premises are older, and potentially need expensive improvement works necessary to meet energy efficiency requirements, to be imposed on landlords as part of an auction letting process.

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BREAKING: HMRC completely rejigs and delays MTD scheme for landlords

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Only landlords with property incomes over £30,000 will now need to comply with HMRC’s looming Making Tax Digital (MTD) rules, while those with incomes under £30,000 will not be mandated to use the scheme until a review has been completed.

Even for landlords with larger incomes from property, HMRC says it realises that they face a greater task to comply with the MTD given the ‘challenging economic circumstances’.

Property income

The dates for the introduction of MTD are now different depending on personal or business property income.

From April 2026, self-employed individuals and landlords with an income of more than £50,000 will be required to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software.

Those with an income of between £30,000 and £50,000 will need to do this from April 2027.

Victoria Atkins (main image), Financial Secretary to the Treasury, says: “It is right to take the time to work together to maximise the benefits of Making Tax Digital for small businesses by implementing the change gradually.

“It is important to ensure this works for everyone: taxpayers, tax agents, software developers, as well as HMRC.

“Smaller businesses in particular should be able to experience the benefits of increased digitalisation of Income Tax in a way which meets their needs. That is why we are also today announcing a review to establish the best way to achieve this.”

Read the ministerial statement in full.

View Full Article: BREAKING: HMRC completely rejigs and delays MTD scheme for landlords

COST RISES: Portfolio landlord says expenses now eat up 32% of his rent

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Analysis by portfolio landlord Open Property Group has revealed that it pays out 32% of its gross rent each month in rental property expenses.

Using Hammock software, the company studied its 140-strong portfolio across England and Wales to establish what percentage of the gross rent it receives as net rent (gross profit) after subtracting typical running expenses but excluding financing costs.

Repairs were revealed as the biggest outlay in November, equating to 11% of the total rental income, while the cost of full-time property managers came a close second at 10%.

General maintenance amounted to 7% and other costs such as gas safety, electrical safety and energy performance certificates totalled 5%.

This means its net rent is 68% of the gross rent, although this does not include mortgage, insurance, licensing and other miscellaneous costs.

Stark reminder

The findings are a stark reminder to landlords that management of a rental portfolio can make up a large chunk of the monthly rental income, eating into profits, and all on top of additional finance and miscellaneous costs, says Open Property Group MD Jason Harris-Cohen (main picture).

“Even if a landlord doesn’t outsource the management, there is still a value they need to put on their time, and these are the kinds of costs they should be scrutinizing when evaluating the health of property portfolios,” he explains.  

“With falling property prices, increased management costs and higher borrowing rates, landlords need to ensure they are conducting a thorough review of their rental portfolio profits to understand which properties are still a viable investment.

“Property remains a solid investment over the long-term, but in the current market and with the ever-changing pressures on regulation, it could make sense to invest in other types of rental properties.”

View Full Article: COST RISES: Portfolio landlord says expenses now eat up 32% of his rent

EPC exemption for stand alone buildings under 50sq/m?

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For over 30 years now, I’ve rented out a small detached property, 30sq/m according to the EPC, which used to be the bakehouse (large oven still in situ) and washhouse for 3 cottages in front of it. The original outside toilet is still in place for summertime use

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What do tenants think of their landlord? New survey reveals unvarnished truth

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A fifth of tenants (19%) rate their rental property as poor, with 35% reporting outstanding repairs, according to new research.

Despite this, the survey of 2,002 private rental sector tenants in England and Wales by the by the TDS Charitable Foundation reveals that 67% were satisfied with their experience, 22% were neither satisfied nor dissatisfied, and 10% weren’t happy.

Of those waiting for repairs, old carpets, painting and security were all rated as areas needing most improvement, although the majority of tenants (33%) cited energy efficiency improvements as key, reflecting concern about energy bills.

Nothing more

It found that 53% of tenants felt their landlord could improve the energy efficiency of their property, with 21% stating there was nothing more their landlord could do.

The survey also found that some landlords weren’t complying with their legal obligations. It asked tenants whether they had received important documents and discovered that 43% hadn’t had the government’s How to Rent guide, 26% didn’t have the Deposit Protection Certificate and 29% didn’t have the EPC certificate.

Challenge

However, TDS says this might not be clear-cut. “Given it is likely that in most cases all of these documents will have been supplied to tenants, the challenge for landlords is to ensure that tenants are fully aware [and therefore will later recall] the importance of each of these documents to them as a tenant.”

Other key findings were that 63% of tenants were satisfied with their letting agent or landlord compared to 13% who were dissatisfied, while 60% of tenants had never heard of the Renters Reform White Paper. Although 69% agreed PRS reform was long overdue, 43% felt the proposals would change very little.

View Full Article: What do tenants think of their landlord? New survey reveals unvarnished truth

Survey reveals just 10% of tenants are not happy with their home

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It might go against the media narrative that landlords offer poor housing, but a survey of tenants has revealed that just 10% of them are unhappy with their rented home.

The findings from the TDS Charitable Foundation also show that 67.7% are happy and 22.3% of renters were neither dissatisfied nor satisfied with their property –

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Tenants using illegal electricity cards?

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Some may find this experience interesting – others may have wise words of advice to offer?

We have two flats over a business which was created 10 years ago. The business pays all the electricity for the whole building and the flats have a sub-meter each which they top up with cards purchased from the agent.

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Problems with mould as heating turned down?

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We have had our flats for over twenty years and they are all in good condition. We have had very little problem with mould until now. Several tenants are complaining and sending photos.

I know they have cut down significantly on heating and are not using the tumble drier because they can’t afford the cost.

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View Full Article: Problems with mould as heating turned down?