Going, going… gone! Local authorities' powers to auction off vacant high street premises
The scenario
You're a landlord with a vacant commercial unit in the middle of your local high street. There are a number of reasons why the unit is empty, but you'd accept that you haven't been pushing hard to let the unit because, in the back of your mind, it's a potential redevelopment project and, for now, it's on the "too difficult" pile.
You've recently heard some worrying news. You've heard that local authorities ("LA"s) might be able to force you to let the property against your will. Is that right?
High street rental auctions
Yes.
LAs have new powers to auction off leases of certain types of vacant units. The LA can effectively force the landlord to grant a lease for up to five years and to carry out works to make the premises fit for use. The powers came into force on 2 December 2024, stemming from the Levelling-up and Regeneration Act 2023 and related rules.
Ouch.
How worried should I be?
There's no need to panic. There are lots of legal and practical constraints on LAs using these new powers. The key constraints are highlighted below.
"Qualifying Premises"
The LA can only act in respect of "Qualifying Premises".
To constitute Qualifying Premises there is both a location requirement and a use requirement.
Location requirement
For the location requirement, the premises must be in an area designated by the LA. In broad terms, this is likely to be the high street or central street areas in town centres. The LA must notify the community of designation proposals, invite representations and, once determined, keep a record of the designated area. This will all take time and resources, both of which LAs are short of – but keep an eye out for any designations that may affect your property.
Use requirement
The use requirement is that the relevant property must have a 'high street use'.
'High street use' has a wide definition but includes shops, offices, cafes, bars and restaurants, amongst other things.
There are also some interesting new permitted development rights for changes to suitable high street uses – but that's beyond the scope of this note.
Vacant premises
How long does my property have to be vacant for before it's potentially caught?
Auctions can only be initiated in respect of units that have been unoccupied for an entire year or at least 366 days in the last two years. That all sounds quite simple, but there are detailed rules to prevent avoidance.
Local benefit
The final qualification requirement is that the LA need to be satisfied that occupation of the property for a suitable high street use would be beneficial to the local economy, society or environment.
The auction process
Assuming that all the qualifying criteria are met, LAs need to follow some strict procedures before auctioning Qualifying Premises.
Most notably, there are detailed notice requirements. LAs can't start the auction process without serving an initial notice. Then, in broad terms, if you can let the premises yourself within 8 weeks of the initial notice the process goes no further – but you do need consent to let from the LA. If you can't let it, then the LA can serve a final letting notice, which kicks off the more formal pre-auction and auction processes.
The LA are obliged to survey the property and there are detailed processes for identifying any works that need to be carried out to the premises before they are let (including any works to meet the minimum energy efficiency standards). LAs must also prepare a full auction pack with searches and replies to standard enquiries (the landlord being obliged to provide those replies). That's likely to entail a lot of up front expense for the LA, though the successful bidder (assuming any bidders can be found) can be required to contribute to the local authority's costs.
Terms of the lease
If the unit is let through the auction process, the form of lease will be largely prescribed by statute, limiting flexibility to impose bespoke terms.
Leases will be for a term between one and five years and outside the statutory security of tenure provisions.
What about mortgagees and superior landlords?
Mortgagees and superior landlords can't obstruct the process. Any lender or superior landlord consents required will be deemed to have been given.
Impact?
It's easy to understand why everyone wants to tackle the issue of vacant units and to breathe new life into local high streets. Unfortunately, whilst the government may think that it has a magic wand to make that happen, it doesn't. Most landlords would love to let their vacant units – there is simply too little demand; and it's not helped by high business rates.
Given the cost in terms of both time and money to bring auctions about, it seems unlikely that many local authorities will embrace their new rights. Far more likely is that the rights will be used only in exceptional circumstances where a particular landlord is being deliberately obstructive to try and secure some sort of collateral advantage. There the existence of the rights – and the simple threat of using them – may be helpful to LAs and the wider community.
Watch this space!
What should I do?
If you have any vacant properties in high street or town centre areas, be alive to the possibility that the high street rental auction rights could be used against you. The biggest fear is that you have to spend a lot of money repairing and improving a property and then you may have to let that property to a tenant with poor covenant strength who may struggle to pay the rent and/or comply with its repairing obligations.
Detailed and complex rules govern how high street rental auctions work and the premises that are subject to them. This note provides general guidance about the premises that might be caught and the processes to be aware of, but if you do have a vacant high street unit that is or might be unlet for a year or more, get in touch and we can help you assess and mitigate the risks in your particular circumstances.
In addition, if you do receive any notices from the LA is important to act very quickly as there are tight time frames that need to be navigated – and potentially alarming outcomes if you fail to do so.
Our expert team can help you to navigate through the new high street rental auction rules and help you to avoid the traps and pitfalls.
If you have any questions or require any further information, please contact:
or your usual real estate contact at Stephenson Harwood.
