Local authorities have the power to hold rental auctions of empty high street premises if they have been persistently empty.
Additional regulations relating to the auction process have recently been released and will come into force in England on 2 December 2024.
Which premises could be caught?
For premises to be affected, the following conditions need to be satisfied:
- they must be within a designated high street or town centre – the local authority is able, after consultation, to designate areas it considers are suitable for high street use because it would benefit the economy to have a high concentration of high street uses in that area;
- they must be suitable for high street use – this includes a broad range of uses such as shops, food and drink establishments and entertainment venues. Warehouse uses are excluded but manufacturing or industrial uses that can be conducted close to and compatibly with other high street uses are included;
- the premises must have been unoccupied for the whole previous year, or unoccupied for a total of 366 days in the previous two years; and
- the local authority must be satisfied that the use of the premises would be beneficial to the local economy, society or environment.
What is the process?
If the above conditions are satisfied, the local authority will be able to initiate an auction by serving an initial letting notice on the person entitled to possession of the premises with sufficient interest to grant a tenancy of one year or more (“Landlord”).
This will trigger an eight-week grace period where the Landlord can let the premises itself, but to do so it will need the consent of the local authority. If any tenancy is granted without the local authority’s consent it may be void.
If, after the initial eight-week grace period has expired, the premises remain unlet, the local authority has two weeks to serve a final letting notice on the Landlord. This then triggers a 14-week final notice period, which can be extended in the case of an appeal or counter-notice served by the Landlord.
A Landlord will then have 14 days to serve a counter notice, which should outline which one of the seven grounds of appeal the Landlord intends to rely on. The grounds of appeal are framed around whether the premises satisfied the conditions to be caught by the high street auction process, whether the local authority failed to consent to a proposed tenancy and whether the Landlord intends to occupy the premises itself. Arguably the most important of these grounds may be that the Landlord intends to carry out significant construction work or demolition, which they could not do if the premises were occupied by a tenant.
Once a counter notice has been served by a Landlord and the local authority does not withdraw its final notice within two weeks of receipt of the counter notice, the Landlord may, within 28 days of the local authority receiving the counter notice, lodge an appeal.
If the Landlord does not appeal, the local authority will have 12 weeks to auction the premises.
During these 12 weeks, the Landlord will be given the opportunity to comment on the proposed lease and choose to accept any of the bids. If the Landlord does not accept any of the bids, the local authority may accept the bid with the highest rental value.
What form will the lease take?
A draft standard tenancy is included in the latest regulations. Briefly, the key terms of a lease granted under a high street rental auction are:
- the deposit will be the higher of £1,000 or the equivalent of three months’ rent;
- the term of the lease will be between one and five years, but cannot be longer than the Landlord’s own interest in the premises;
- there is no prescribed minimum rent and rent must be paid by monthly instalments on the first day of each month;
- that it must require the premises to be used for a suitable high street use specified by the local authority prior to the rental auction. This may be a different use than previously permitted for planning purposes and saves the tenant having to apply for planning permission;
- the tenant will have no right to renew the lease at the end of the term; and
- alienation is prohibited except for a transfer of the whole of the premises.
It is probably safe to say that there is consensus that we want our high streets to be vibrant and successful. The high street rental auction process may encourage a more proactive approach to managing persistently vacant units, but risks proving insufficient to tackle the root causes of those long-term vacancies, such as premises no longer being to modern specifications and the economic viability of the capital investment required to make them lettable.
If you would like to discuss anything raised in this blog, please contact Beth Margetson or Megan Evans on 0121 236 7288, or by email at beth.margetson@mfgsolicitors.com and megan.evans@mfgsolicitors.com.
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