A bid-ness opportunity? How High Street Rental Auctions could impact our High Streets

On 2 December 2024, Regulations bringing in the high street auction provisions contained in the Levelling-up and Regeneration Act 2023 come into force.

In a nutshell, local authorities in England will have the power to conduct compulsory rental auctions of vacant premises in designated high streets or town centres.

The powers are discretionary and apply where a Council has designated a high street or town centre area based on its importance to the local economy.

If premises are in a designated street / area and:

• a Council considers them suitable for high-street uses (shops, offices, food and drink, entertainment/recreation and communal halls/meeting places); and
• the premises have been unoccupied for the whole of the previous year, or for at least 366 days during the previous two years ending; and
• a Council considers that the occupation of the premises for a suitable high-street use would be beneficial to the local economy, society or environment,

then the Council can initiate the auction process:

• The first step is for the Council to serve an initial letting notice on the landlord. This triggers a 10 week period, within which the landlord has eight weeks to let the premises itself, with the Council’s consent.
• If the landlord hasn’t let the premises itself within the eight-week grace period, the Council has a further two weeks to serve a final letting notice on the landlord. There is then a 14 week period, within which the Council may auction the premises and during which there are restrictions on the landlord’s ability to let the premises itself or carry out works to the premises.
• After the final letting notice has been served, the landlord has 14 days to serve a counter notice, setting out grounds of appeal (which include the premises not being suitable for high-street use, the landlord intending to develop or substantially redevelop or the landlord intending to occupy for its own business or residence). If the Council doesn’t withdraw the final letting notice, the landlord must issue an appeal to the county court within 28 days of the Council receiving the counter notice.
• If the Council decides to go ahead with the auction, the process takes around 11 weeks and the Regulations set out a week-by-week timetable.

Some key points to note are:

• The landlord could be required to carry out works to bring premises up to minimum standard (a condition which is safe, secure and with any significant occupational risks removed or managed).
• The landlord must provide replies to CPSEs, title and other information within a tight timescale (it is a criminal offence not to do so).
• Landlords do get an opportunity to make representations about the proposed terms of the agreement for lease and lease, which the Council must take into account, but again there is a tight timeframe for doing so.
• There is no exemption from the Minimum Energy Efficiency Standards, so any sub-standard premises would need to be brought up to EPC rating of E

The Regulations set out those terms that must and may be included in any agreement for lease and lease. In particular:

• The term of the lease must be at least one year, and no longer than five years, but cannot be longer than the landlord’s own interest, if it is a tenant itself.
• The permitted use will be that specified by the successful bidder, but must fall within the high-street use specified by the Council.
• The rent will be specified by the successful bidder.
• There will be a four-week rent-free period to allow for fitting out.
• There is deemed consent from any superior landlord or mortgagee.
• Security of tenure is automatically excluded.

On Thursday 21 November an HSRA ‘showcase’ event took place in Wolverhampton, where it was announced that four local authorities would pilot the new regime: Bassetlaw, Bournemouth and Poole, Darlington and Mansfield. These Councils will help develop best practice and guidance for other councils to follow, and provide feedback to MHCLG about the process. The government will also issue detailed guidance when the Regulations come into force in December.

The key message seems to be that the powers are very much intended to encourage Councils and landlords to talk to each other and work collaboratively, with the auction being a course of last resort. There are obviously many reasons why premises are vacant and it’s not just down to landlord behaviour. These powers are therefore just one part of what needs to be a broader economic strategy.