On the second day of Christmas, the Government took from me…the power to rent high street property

Somewhat out of the blue and with little public consultation, the government announced that from 2 December 2024, local authorities will have power under the Levelling-Up and Regeneration Act 2023 to auction tenancies of vacant premises in designated high streets or town centres, without landlord consent.

The aim of the scheme is to “breathe new life back into high streets and transform long-term empty shops“. Indeed, the consultation that preceded the legislation noted that 80% of vacant commercial properties have been empty for more than 2 years, with 20% being vacant for more than 4 years.

Which premises are affected?

To be within scope of the new rental auction powers, the premises must satisfy the following:

• Designation: the premises must be situated on a designated high street or town centre;
• Suitability: the premises must be considered by the local authority to be suitable for a high street use;
• Vacant: the premises must have been unoccupied for the whole of the last year or at least 366 days during the previous two years (including vacant periods before the provisions come into force);
• Beneficial: the local authority must be satisfied that such occupation would be beneficial to the local economy, society or environment.

Overview of new regulations

The regulations, which came into force on 2 December 2024, accompanied by non-statutory guidance High street rental auctions: Non-statutory guidance – GOV.UK include:

• A weekly timetable dictating the auction process which covers (among other things) giving notice to the landlord of the intended auction, producing the auction pack, identifying any landlord’s works to be carried out, marketing the property and concluding the auction. The timetable is tight – in some cases, the landlord may have as little as a week to comply and there can be criminal sanctions for breach;
• Amendments to planning legislation to allow a change of use for the duration of the tenancy. The local authority are not constrained by the existing planning use but must specify the suitable ‘high street use’ they intend to apply to the premises. The permitted use will revert to the original use at the end of the tenancy;
• Provision for the local authority to require the successful bidder to pay for the searches, survey and its legal costs incurred in preparing the auction pack and documents. The landlord will have to bear its own costs, most notably the cost of any works deemed necessary to bring the premises up to the minimum standard.
• The prescribed forms and key terms that will be offered to the Tenant. The agreement for lease specifies the minimum standard of repair for the property and an obligation on the landlord to carry out any works that are needed to reach the minimum standard – if the landlord doesn’t carry them out, the tenant may do so and then deduct the costs from the rent payable. The lease term must be between 1 and 5 years with no security of tenure. Notably, there is no prescribed minimum rent and the tenant will be granted a 4 week rent free period to allow for fitting out.

Conclusion

There will be concerns that these new powers allow local authorities to take control of high street vacant premises to force lettings on owners. However, it is worth remembering that there are several conditions that must be satisfied before the powers can be exercised and as the powers are permissive, it is questionable whether local authorities will have the appetite and capacity to conduct what is bound to be a time-consuming and complex process. The reality is that landlords are not going to be sitting on empty properties for no reason and this approach naively overlooks other underlying economic and legal factors such as high business rates and shifting consumer habits. Instead of enticing investment into the high street, this strategy may well deter investors.

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