10 FAQs from a landlord's perspective about rental auctions of vacant high street premises

Earlier this month, local authorities in England were granted a new power to help them reinvigorate their local towns: they can now hold rental auctions to arrange lettings of vacant high street and town centre properties. In this briefing, we answer 10 frequently asked questions about the new regime from the perspective of a landlord.

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What is the relevant legislation?

The new regime is set out in Part 10 of the Levelling-Up and Regeneration Act 2023 (the "Act") with detailed regulations in the Local Authorities (Rental Auctions) (England) and Town and Country Planning (General Permitted Development) (Amendment) Regulations 2024 (the "Regulations").

Is there any Government guidance?

Yes, non-statutory Government guidance was published on 2 December 2024.

Which premises are within the scope of the new regime?

Those which:

are located in an area which the local authority has designated as a 'high street' or 'town centre', on the basis that they consider this area to be important to the local economy because of a concentration of 'high street uses' (see box);
the local authority considers to be suitable for a 'high street use';
meet the 'vacancy condition' (see box); and
the local authority considers would be beneficial to the local economy, society or environment when occupied for a high street use.

Will units in shopping centres be affected?

Unlikely, because a local authority can only designate an area as being suitable for this new regime if "the built environment of the area is characterised principally by a network of streets, and the authority considers that the area is important to the local economy because of a concentration of high-street uses of premises in the area", according to section 191(2) of the Act.

Does the regime just affect empty shops?

No, for the purposes of this Part, premises are “qualifying high-street premises” if they are situated on a designated high street or in a designated town centre, and the local authority considers them to be suitable for any of the high-street uses set out above, according to section 192(2) of the Act.

How will the auction process work?

The process is set out in the Regulations, and summarised below:

Auction Process Diagram

What will the leases look like?

The terms of the agreement for lease are set out in schedule 2 of the Regulations, and the terms of the lease are set out in schedule 3 of the Regulations.

A contentious feature of the agreement for lease is that if the survey carried out by the local authority indicates that the property needs work before it meets a 'minimum standard' defined in Schedule 2 of the Regulations, then these must be carried out at the landlord's cost. The MEES Regulations will also continue to apply to the property, meaning that energy-efficiency works may also be required prior to letting.

The leases will be for a term of between 1 and 5 years, will be contracted out of the security of tenure provisions in the Landlord and Tenant Act 1954 and will be for the permitted use and for the rent that were specified in the successful bidder's tender. Repairs will be by reference to a schedule of condition.

Who will bear the costs of the new regime?

The local authority can require the successful bidder to pay for the searches, survey and its legal costs incurred preparing the auction pack, including the agreement for lease and lease. The landlord will have to bear its own costs, including the works discussed at question 7 above. The Government will provide local authorities with £2 million to help fund this new regime, but it is thought that this may be insufficient support for hard-pressed councils.

How can landlords stop the process from affecting their premises?

A landlord can serve a counter-notice under section 201 of the Act, 'before the end of the period of 14 days beginning with the day on which the final letting notice takes effect'. This notice must state that, if the final letting notice is not withdrawn, the landlord intends to appeal against it, and it must also specify which of the grounds in Part 1 of Schedule 20 of the Act the landlord intends to rely on in its appeal. If the FLN is not withdrawn, the landlord has 28 days (starting on the date the counter-notice was received by the local authority) to launch the appeal to the County Court.

        Grounds of appeal against final letting notice
    
That the vacancy condition was not met on the date of the initial letting notice.

That the premises cannot reasonably be considered suitable for the use identified in the final letting notice as the suitable high-street use.

That the local authority’s view that the local benefit condition was met in relation to the premises was one that no authority giving reasonable consideration to the matter could have reached.

That the local authority failed, while the initial letting notice was in force, to give consent under section 196 to a proposed letting where it should have done so under section 197.

That the landlord intends to carry out substantial works of construction, demolition or reconstruction at the premises, and could not reasonably do so without retaining possession of the premises.

That the landlord intends to occupy the premises for the purposes, or partly for the purposes, of its own business.

That the landlord intends to occupy the premises for its own residence.

How has the new policy been received by landlords?

The BPF has opposed the policy, largely on the basis that it reflects a misunderstanding as to the causes of vacancy which, they believe, are connected to an oversupply of retail units in many locations, in the context of the huge growth in online sales, combined with the impact of business rates. On a practical level, they suggest that the regime should not apply where landlords can prove that they are actively marketing a unit themselves.

They also point out that many of the vacant units in question are likely to be of lower quality than most occupied units, and will therefore require significant investment to bring them up to a lettable standard. Landlords may not have the funds needed to carry out these works. It could be seen to be unreasonable to expect them to carry out expensive works in return for a tenant potentially paying very little rent, as there is no de minimis rental level in the standard lease.

However, there is also some scepticism as to how often this fairly cumbersome new regime will be utilised in practice.

The new regime also needs to be considered in light of the report published by the Built Environment Committee of the House of Lords on 28 November 2024 called "High Streets: Life Beyond Retail", which recommends that the Government should support local authorities to make use of the new High Street Rental Auction powers, but also suggests that regenerating high streets will involve a wide range of strategies including introducing public services such as libraries and healthcare centres into high streets, as well as ensuring that there are more green spaces nearby, improving access by public transport and reforming business rates.