Government commits to shop rental auctions

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Despite strenuous objections from industry professionals and landlords, it seems the government is determined to press ahead with its scheme to “solve” the problem of vacant high street premises.

Draft Levelling-up and Regeneration legislation has now been published which includes this controversial measure.

The draft Levelling-up and Regeneration Bill was published on 11 May 2022 and it contains full details of the government’s proposed high street rental auctions process, and how local authorities are to control who landlords can rent to, along with a raft of other property related measures.

The government says the Bill will “unlock new powers for local authorities to bring empty premises back into use and instigate rental auctions of vacant commercial properties in town centres and on high streets.”

Government literature states:

“The Bill will also directly give local leaders the powers they need to regenerate their communities, and transform their high streets and town centres.

“A new infrastructure levy will see the big developers contribute more towards better local roads, schools, hospitals, and genuinely affordable housing.

“Communities will also receive a share of the Levy revenue raised – as long as they have a parish or town council – and we are exploring how this could be expanded.”

The new proposals include:

• New powers for local leaders to run High Street Rental Auctions, where they can auction off tenancies in shops that have been vacant for over a year.

• Councils will be able to double council tax on empty and second homes, “ensuring everyone pays their fair share towards local services and boost levelling up.”
• The ‘al-fresco dining revolution’ will be made permanent, “injecting new life into the high street through creating a sustainable process for communities, business and local authorities, making it permanently cheaper and quicker to get a licence for outdoor dining.”
• A new locally set infrastructure levy, charged on the final value of property when its sold, to replace much of the “broken” S106 payments system. “This will see the big developers contribute far of the money they make from developments towards building better local roads, rail, schools, hospitals, and more affordable housing.”
• Legislation to make it easier for councils to regenerate their town centres through Compulsory Purchase Orders (CPOs), making the process quicker and easier to use.

Designated areas

The local authority will be empowered to designate a street or an area as being important to the local economy because of the concentration of high street uses. These high street uses are defined in the Bill across shops, offices, restaurants and light industrial, but does not include warehouses.

Once an area has been designated as such, any vacant units will be included in the scheme to force letting through a rental auction. This would be where it is considered by the local authority that occupation is beneficial to the local economy, society or environment.

A vacancy is defined in the Bill as a property in one of the designated areas that has been unoccupied for 366 days or more. This raises questions about what exactly is unoccupied, what about pop-up short term licences, what if the owners use it for storage?

By defining premises as the whole or a part of a building or any part that could with reasonably adapted, it seems it would allow a local authority to specify which part is to be let, for example just the ground floor retail unit of a three story building.

How will forced letting work in practice?

The Local Authority will serve a letting notice on the landlord preventing it from letting for up to 10 weeks without the consent of the authority, unless a contract has been already signed with a tenant.

The authority will have control over the landlord’s choice of tenant during the notice period. Any letting must be for at least a year and the will lead to the premises being occupied by “the regular presence of people at the premises.”

If the landlord fails to find a suitable tenant – one acceptable to the local authority within the initial letting notice period, then a process of a countdown to a letting auction begins.

The auction itself will be controlled at the discretion of the local authority in that the authority will ultimately choose the successful tenant: not necessarily the highest bidder.

The legalities

Further clarification is to be forthcoming as to the terms of any lease between the parties, but this, it would seem, has the makings of a legal nightmare: what about pre-tenancy works and who pays for these, how is the rent set and on what basis, for example turnover rents? What about the responsibility for repairs and maintenance, full insuring and repairing lease? What about responsibility for delapidations? What about security of tenure? The list of questions goes on.

These measures, it seems, ride a coach and horses through the Landlord and Tenant Act 1954, legislation that has governed commercial tenancies in England & Wales quite successfully for many years.

Property professionals and landlords have expressed serious misgivings about how this scheme can be made to work with any degree of success, and without causing commercial property owners serious financial losses.

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