The introduction of the Levelling Up and Regeneration Act 2023 granted powers to Local Authorities to conduct High Street Rental Auctions (HSRA). This is a mechanism for councils to auction persistently vacant commercial premises for rent without the consent of the Landlord or their mortgagees.
Whilst introduced with the aim to revitalise declining high streets and boost the local economy this does provide significant restrictions to Landlords on the future use of their properties and, in many cases, to whom these are let.
Which properties does this affect?
HSRA’s affect commercial properties located within a designated high street or within a designated town that has been vacant for at least one year or for 366 days or more in a period of 2 years. Additionally, the council must consider the property to be for a high street use that is beneficial to the local economy. These uses include:
- Use as a shop or office
- Use for the provision of services to persons who include visiting members of the public
- Use as a restaurant, bar, public house, café or other establishment selling food or drink for immediate consumption;
- Use for public entertainment or recreation;
- Use as a communal hall or meeting place; and
- Use for manufacturing or other industrial processes of a sort which can (in each case) reasonably be carried on in proximity to, and compatibly with, the preceding uses.
What to expect from the process?
Providing the above requirements are met, the Local Authority must serve the Landlord with an initial notice, which may last up to 10 weeks, confirming that the property is eligible for the HSRA. During this initial notice period, the Landlord can take active steps themselves to let the premises. If at the end of the initial notice period the property has not been let, the Local Authority will serve a final letting notice which will expire a maximum of 14 weeks later. Once this final letting notice has been served, a Landlord will then be unable to let or carry out any works to their property without the consent of the Local Authority.
A Landlord may appeal the final notice on the basis that they intend to carry out substantial works of construction, demolition or reconstruction affecting the premises or they intend to occupy the property for their own business or residential purpose. Any counter-notice served is considered at the discretion of the Local Authority and if accepted then the process would stop here. However, if the counter-notice is not accepted, then the property will proceed to rental auction.
What happens at the rental auction?
The rental auction can take between 10-12 weeks from start to finish and during this time, the Local Authority will market the property to prospective tenants in the aim to secure bids. During this stage, Landlords will be required to assist the Local Authority by providing information evidencing their ownership of the property, replies to pre-contractual enquiries, gas and electrical safety certificates and any fire risk assessments or asbestos reports they may hold for the premises. This information is key for the preparation of the auction pack and a failure for the Landlord to provide such information without a reasonable excuse could see the Landlord fined £2,500.00 and so the onus is very much placed on the Landlord to comply at all stages of the auction process.
The Local Authority can offer a lease of between 1 or 5 years duration and any such lease agreed would be excluded from the security of tenure provisions (i.e., outside of the Landlord and Tenant Act 1954).
Once the property is marketed, prospective tenants have the opportunity to submit bids for their preferred property. Here, any such bids received by the Local Authority must be served on the Landlord for consideration and so this does afford a brief window for the Landlord to consider the tenant options put to them prior to choosing the tenant they wish to continue with. Landlords should not take this process lightly as, if a Landlord does not accept any valid bids then the Local Authority have the power to accept the bid with the highest annual rental value. Swift action by a Landlord is required to ensure that you have control over the tenant you wish to accept.
Once a successful bid is accepted, and Agreement for Lease is entered into by the Local Authority and the effect of this is as if it were entered into by the Landlord of the premises instead of the Local Authority.
After the Auction
Once an Agreement for Lease is in place, the Landlord must ensure that the property to be let is minimum standard. This includes but is not limited to:
- Ensuring that all fire safety requirements are in place, functional and supported by a Fire Risk Assessment;
- Ensuring that all mains water, gas and electrical services are connected and certified as safe;
- Ensure that the property itself is clear of debris and that all shopfronts, frames and entrance doors are intact, sound and operational.
For some properties that have been vacant prior to the auction, it will be required for the Landlord to carry out works to bring the property to the minimum standard. This then places a burden on the Landlord to take action to rectify defects at the property and where such works are required, the Landlord must take reasonable steps to ensure that such works are completed within three calendar months of the date of the Agreement for Lease.
What does this mean for you?
Currently in its initial stages, 11 councils have opted into this scheme however this number is growing as the scheme finds it footing. Whilst Kirklees, Calderdale and Leeds City Council are not currently participating there is no telling when more local authorities will join the cause.
For Landlords, if you receive an initial notice it is key to carefully consider your options as you are only afforded a short timeframe to reject the HSRA. Seek legal advice at the earliest opportunity to give yourself the best fighting chance.
Find out more about how our Real Estate team can help you with all your commercial landlord needs.
The above article is for illustrative purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any part of the information given.
Furthermore, the information contained is accurate and up to date as of the date of publication. Readers should be aware that legislative frameworks may have been amended since the original date of publication.