High street recovery – high street rental auctions (HRSA’s)

Since 2 December 2024, when non-statutory guidance was published, local authorities in England now have powers to hold rental auctions to let qualifying commercial premises on the high street that have been unoccupied for the whole of the previous year or at least 366 days in the preceding two years.  Our previous article ‘On the second day of Christmas, the government took from me…the power to rent high street property’ provided an initial review of the scheme. Now that more information has been produced by the government we consider whether we are likely to see high street rental auctions gaining momentum this year.

Guidance and regulations made under Part 10 of the Levelling Up and Regeneration Act 2023 now enables local authorities to designate empty qualifying high street premises suitable for “high street use”, and situated within a designated high street or town centre, as important to the local economy.

High street use includes shops, offices, services to visiting members of the public, restaurants, pubs, bars and cafes; used for public entertainment or recreation; communal halls or meeting places and compatible manufacturing or other industrial processes.  (warehouses are specifically excluded).

In terms of the mechanics of the process, a local authority can serve an initial letting notice (ILN) on the landlord, giving the landlord 10 weeks to let the premises but subject to written consent of the local authority.  If, after 8 weeks, no letting arrangement has been agreed by the landlord, a final letting notice (FLN) can be served on the landlord.  This imposes further restrictions on the landlord’s ability to deal with the property.  The FLN is valid for 14 weeks.

The landlord has 14 days to after service of the FLN to serve a counter-notice setting out which of the 7 statutory grounds the landlord is replying on and 28 days to lodge an appeal if the FLN is not withdrawn.  If the appeal is unsuccessful, or no appeal is lodged, the local authority can continue to the rental auction. A rental auction is defined as the process to find a person willing to take a tenancy of the premises which the local authority considers is suitable. The auction process is conducted via sealed bids.

The local authority prepares the auction pack although the landlord is expected to provide accurate replies to enquiries, proof of title and other documents and information regarding the premises, including EPC’s gas and electrical safety certificates and fire safety certificates.

The successful bidder enters into two agreements, an agreement for lease and separately, the lease, both of which will be in the following prescribed terms:

Term: between 1 and 5 years;

Deposit: £1000 or 3 month’s rent, whichever is higher;

Rent: monthly in advance payable on the 1^st day of the month at a rate proposed by the successful bidder;

Repairs: limited by a schedule of condition;

Excluded from the Landlord and Tenant Act 1954;

Use: the use proposed by the successful bidder within the suitable high street use identified by the local authority.  Change of use is not permitted;

Assignment: of the whole is permitted with landlord’s consent not to be unreasonably withheld or delayed.  AGA’s can be required where reasonable as requested by the landlord.

The local authority has the power to enter into the agreement for lease and lease on behalf of the landlord if the landlord is unable or unwilling to do so.

It is a criminal offence for a landlord not to respond to requests for information about premises made by the local authority, without reasonable excuse or to give false information punishable with a fine up to level 4 on the standard scale (currently £2,500).

The whole process is expected to take between 22-24 weeks from start to completion.  The Government estimates the total cost per auction transaction at £5,223.  Costs will be paid by the successful bidder and the local authority bears the costs of the marketing and auction fees

Opponents criticise the scheme, as it displays a misunderstanding of the causes of high street vacancy and the fact there is an oversupply of retail units in many locations, many vacant units tend to be of lower quality often requiring substantial works, plus the impact of business rates.   Reforming business rates has been suggested as a more effective way to rejuvenate high streets than the rental auction process. Additionally, there is scepticism about whether local authorities will have the capacity, resources, and inclination to utilise these powers effectively. The process has also been criticised for potentially infringing private property rights amounts to state interference in the free market.   The guidance aims to ensure that the process is transparent and premises are let to suitable tenants who can fulfil their obligations.  While HRSAs are seen as a potential solution to long-term vacancies on high streets, their effectiveness and impact remain subject to debate and scrutiny.

In the 6 weeks since the introduction of the new auction powers, we are not aware of any local authority having served an ILN or made any substantive steps to invoke their new powers.

How we can help

If you need further advice or information on high street rental auctions, please contact property disputes team.