The government has granted power to local authorities to “breathe new life back into high streets and transform long-term empty shops”. High Street Rental Auctions (HSRAs) will enable local authorities to tackle persistently vacant properties by putting empty shop leases up for auction. Partner Mitchell Griver examines the new proposals.
The government says UK high streets have been neglected for too long, resulting in one in seven high street shops currently being closed. It has committed to “revitalise town centres and bring thriving high streets back for good”.
Under new rules that came into force on 2 December 2024, councils will be able to step in and auction one-to-five-year leases of “qualifying high street premises” that have been empty for more than 365 days in the previous two years.
Qualifying high-street premises
“Qualifying high-street premises” are premises the local authority considers suitable for “high-street use” situated in a designated high street or town centre. The local authority can designate a street as a high street and/or a network of streets as a town centre if they consider them important to the local economy because of a concentration of “high-street uses”.
High-street use
High-street use includes shops, offices, restaurants, bars, cafes, communal halls and meeting places but excludes warehouses.
Landlord’s involvement
Local authorities must start the process by serving a notice on the landlord of the qualifying premises. For 10 weeks from the date of the notice, the landlord is subject to restrictions on letting the premises.
If the premises remain unlet after eight weeks, the local authority can serve a final notice on the landlord. This further restricts the landlord from letting or doing any works to the premises. At this stage, the landlord can appeal the final notice (within 14 days) on one of the permissible grounds. These include carrying out substantial works of construction, demolition or reconstruction that could not reasonably be done without retaining possession of the premises.
The auction
Once the appeal notice period has expired, the local authority will be responsible for preparing an auction pack. Landlords must provide relevant information, including proof of legal title, replies to enquiries and other documents and information such as EPCs, gas, water, electrical safety and fire safety certificates. Failure to comply by a landlord is a criminal offence.
There is a six-week marketing period during which prospective tenants can submit bids. The landlord has two working days to serve notice on the local authority of its choice of successful bid. If the landlord fails to serve such notice by the required deadline, the local authority should accept the bid with the highest rental value or otherwise the highest rental value with whom it is reasonably practicable to enter into a contract, although it may decide not to accept any bid.
The local authority then has the power to enter into the agreement for lease, thereby legally binding the landlord.
Lease terms
There will be standard form agreements for lease and leases, and the legislation prescribes specific terms for these as follows:
Term: between one and five years.
Deposit: the higher of £1,000 and three months’ rent.
Rent: payable monthly in advance on the first day of the month.
Repair: limited by a schedule of condition.
Alterations: installing shop fittings is permitted without the landlord’s consent. Other alterations are permitted subject to the landlord’s consent, which cannot be unreasonably withheld or delayed.
Dealings: dealings are prohibited except for an assignment of the whole with the landlord’s consent, which cannot be unreasonably withheld or delayed.
Use: the use proposed by the successful bidder must be within the suitable high street use identified by the local authority. A change of use is not permitted.
Security of tenure: this is excluded.
Costs
The local authority must pay the marketing costs and auction fees. It may require the successful bidder to pay legal costs, surveys and search fees. The landlord will be required to pay for any works needed to bring the premises to a “minimum standard” prescribed by the new regulations, for example, in relation to matters such as fire safety.
Comment
While reinvigorating failing high streets is a laudable goal, this legislation is incredibly draconian. It seems remarkable that landlords are losing the power to control who they let their premises to and on what terms. They may also be expected to spend money to bring premises up to a “minimum standard” despite the premises having laid empty for more than a year out of the previous two years.
We will be watching closely how landlords react to this new legislation and whether it spurs some to grant leases of persistently empty premises on their own terms rather than on terms imposed upon them. It will also be interesting to see how proactively local authorities embrace this new legislation to rejuvenate their local communities.
If you have any queries regarding High Street Rental Auctions, please contact Mitchell Griver at mrg@portner.co.uk.
For more information visit our website: https://www.portner.co.uk/contact/
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