Local authorities now have the power to hold high street rental auctions to rent out vacant high street commercial properties without landlord or mortgagee consent.
The Local Authorities (Rental Auctions) (England) and Town and Country Planning (General Permitted Development) (Amendment) Regulations 2024 ("the Regulations") came into force on 2 December and bring in the high street auction provisions contained in Part 10 of the Levelling-up and Regeneration Act 2023 ("the Act").
The UK government is hopeful this will "breathe life back into high streets".
Qualifying premises
The new regime will apply to premises which:
- satisfy the “qualifying high-street premises” definition in section 192(2) of the Act. These must be situated on a designated high street or in a designated town centre, and the local authority must consider them to be suitable for high street use;
- are vacant for more than a year or at least 366 days in 2 years; and
- the local authority considers beneficial to be occupied for a high-street use for the local economy, society or environment.
Notices
A local authority can kickstart the process by serving an initial letting notice on the landlord (s195 of the Act). An initial letting notice should also be served on any superior landlord or mortgagee, if applicable. This means for 10 weeks landlords will be unable to rent out the premises without the local authority's consent.
Once 8 weeks of the 10 week period have passed, and if the premises remain vacant, the local authority may proceed with a final letting notice (s198 of the Act). During the 14 week period of the final letting notice, landlords will be unable to rent out the premises and will not be able to carry out any works to the premises without the local authority's consent.
A landlord can serve a counter-notice on the local authority, in response to the final letting notice, specifying one of the grounds of appeal (set out in part 1 of Schedule 20 of the Act). The counter-notice must be received by the local authority before the end of 14 days from the date of the final letting notice. All the prescribed forms of the various notices to be used are within Schedule 1 of the Regulations. The agreement for lease and tenancy terms are also set out in Schedule 1.
If a final letting notice remains in force in relation to the premises, and it is no longer possible for the notice to be revoked on appeal as the time for doing so has passed (s203 of the Act), the local authority may proceed with the rental auction.
Auction process
The Regulations set out the timetable for what happens during the auction process:
- As a preliminary step, the local authority must instruct a qualified person to survey the premises for the purposes of preparing a schedule of the works required in order to raise the premises to the minimum standard required under the Regulations. The landlord must carry out these works at its own cost.
- In week 1 the local authority must serve notice of its intention of the rental auction on the landlord. It must carry out the relevant searches.
- In week 2 details of the proposed tenancy and terms are provided to the landlord. The landlord must provide title information, replies to enquiries and other information it has available to the local authority.
- In week 3 the landlord has the opportunity to make representations in respect of the proposed tenancy and terms.
- In week 4 the local authority must serve the auction pack on the landlord including the tenancy contract, an explanation as to how the landlord's representations were taken into account, the results of the searches, and a marketing brochure.
- In weeks 5-10 there is a marketing period, in which the local authority must begin to market the premises, and this is when bids will be received.
Once all the bids are in (as soon as reasonably practicable after the end of the tenth week and at the latest before the end of the eleventh week), the local authority must serve any valid bids on the landlord or serve notice that no late bids have been received. The landlord has two working days to decide which bid to accept.
If the landlord fails to choose a bid, the local authority may choose to accept one, although it is not obliged to. The local authority must choose the bidder offering the highest annual rental value for the premises as the successful bidder (unless it is not reasonably practical to enter into a contract with them).
The rental auction is concluded on exchange of the lease.
The new lease
The lease may only be for a period between 1-5 years and will be excluded from the security of tenure provisions of the Landlord and Tenant Act 1954. There is also a fixed four week rent free period.
The Regulations amend the Town and Country Planning (General Permitted Development (England) Order 2015 so that permitted development rights are automatically granted for the material change of use of a qualifying high street premises from its previous lawful use to any a suitable high-street use (which means a high-street use for which the local authority considers the premises to be suitable). Where the lawful use of premises already fall within Class E of the Town and Country Planning (Use Classes) (England) Order 1987, the new permitted development rights created by the Regulations will be of limited further benefit, because Class E is already a very wide use class. However, the new permitted development right will give significant additional flexibility where the existing use of a premises falls outside of Class E. This gives the local authority a high degree of discretion in terms of the uses that can be permitted, thereby broadening the appeal to a wide range of prospective occupiers. At the end of the tenancy the use must revert to the previous lawful use.
The new legislation is likely to be seen by some as a welcome move, with the potential to help revive town centres. It will be interesting to see to what extent, and how in practice, these Regulations will be used by local authorities and the impact they will have. If nothing else, the existence of this new regime introduces a new back stop position which may compel landlords of empty high street properties to make renewed attempts to let them out on their own terms or to collaborate with local authorities, rather than being forced to do so via a process in which they have limited control.
Further information can be found in the non-statutory guidance which accompanies the Regulations: High street rental auctions: Non-statutory guidance - GOV.UK
