Tucked away in Part 8 of the Levelling-Up and Regeneration Bill is a provision that may alarm commercial landlords. This provides for local authorities to intervene in the normal commercial landlord and tenant relationship and agree lettings of vacant high-street premises through auction.
The Bill gives the local authority the right to act where high street premises have been unoccupied for an entire year, or at least 366 days in the past two years, and where it deems the occupation of the premises for a suitable high-street use would be beneficial to the local economy, society or environment. “High-street use” is widely defined in the Bill and includes shops, offices, restaurants, bars, cafés, communal halls or meeting-places and even manufacturing processes.
If premises qualify, the Local Authority can serve notice on the landlord, valid for 10 weeks, during which the landlord will not be able to let the property without the Local Authority’s consent and then only if the letting begins within 8 weeks, lasts for at least a year and will have people regularly present at the property.
If no tenancy has been agreed within 8 weeks, the Local Authority can serve a final notice. At this point, the landlord can serve counter notice and, if necessary, appeal. Grounds for appeal include where the landlord intends to carry out development works and needs possession, or the landlord intends to occupy the premises himself. Other grounds are the premises are not vacant, they are not suitable for high street use or will not be of local benefit.
If the landlord doesn’t appeal or is unsuccessful, the property can be taken to auction, where the Local Authority can contract in its own name with a prospective tenant and can bind the landlord to that agreement. If the landlord does not agree to grant a tenancy of its own accord, the Local Authority can then grant the tenancy, with deemed consent from any superior landlord or mortgagee.
Is this merely a publicity stunt by the government? It seems to be based on the premise that landlords are allowing high street premises to remain empty rather than taking all possible steps to let them. Is the assumption that greedy landlords are simply holding out for higher rents than people are prepared to pay? How does that make any sense when the landlord’s business is in letting? The truth is that many landlords in this position are letting to tenants for low or no rent, particularly to charities. This is of course not entirely an altruistic move on the landlord’s part, but relates to a major issue, completely ignored in the Bill – rates.
Whilst business premises remain empty, without any lease in place, the burden of paying business rates falls to the landlord. Landlords are reluctant to terminate existing leases even where the tenant is not paying rent and is not in occupation because the rates liability rests with the tenant. Prospective tenants looking to bag a high street property at a local authority auction may well not be so keen on the rates liability, and nothing in the Bill suggests there will be any rates mitigation schemes for the lucky auction winners. That would definitely help the high street.
Issues around the process of getting interested parties to sign up where commercial landlords have failed aside, will local authorities seriously have the time, money or inclination for this? There are also question marks over the legality of authorities assuming the role of landlord at auction, and compelling landlords to complete new leases. This will no doubt attract much debate but it’s hard to see this provision seeing the light of day. This looks like a gimmick, not a plan.