Amid strong industry objection to its proposed rental auctions scheme for vacant high street premises, the government has launched an open consultation to seek views on matters that will form part of the scheme, first introduced in the Levelling-Up and Regeneration Bill.

The government has published the draft Bill with the intention of “unlocking new powers for local authorities to bring empty premises back into use and instigate rental auctions of vacant commercial properties in town centres and on high streets”.

Since its first reading, the Bill has progressed through the Commons to the Committee stage in the House of Lords. However, there remains strong industry objection to the proposed scheme. The initiative is being undertaken by Department for Levelling Up, Housing and Communities, led by Michael Gove.

As such, the Department for Levelling Up, Housing and Communities has launched an open consultation, closing on 23 June 2023, to gather opinions from landlords, tenant businesses, community groups and local authorities before the Bill is expected to become law later this year.

The proposed scheme would occur where a local authority decides that “vacant premises” should be subject to a rental auction. It currently proposes that this would happen in the following circumstances:

  • The local authority serves an initial letting notice on the landlord which broadly prevents the landlord from letting the premises while the notice is in force without the consent of the local authority unless the landlord had entered into a pre-existing contract with a tenant. The initial letting notice may not expire for up to 10 weeks.

  • The local authority’s consent must be given if the tenancy is for at least a year and the local authority is satisfied that it will lead to the premises being occupied by the regular presence of people at the premises.

  • If the premises have not been let within a period of eight weeks, the local authority can serve a final letting notice on the landlord before the initial letting notice has expired.

  • The final letting notice will expire at the end of a maximum 14-week period if it has not been withdrawn or revoked on appeal.

  • During the final letting notice period, the landlord cannot let the premises or carry out works to the premises without the local authority’s written consent and the local authority can arrange for a rental auction of the premises.

After the consultation closes, the Department for Levelling Up, Housing and Communities will analyse the results, publish the key findings and use them to develop further policy detail which will inform secondary legislation.

Known unknowns

The consultation seeks views on a wide range of topics related to the high street rental auctions scheme, including:

  • How the auction process should run.
  • Whether regulations and guidance produced alongside the primary legislation should be more prescriptive or limited in nature.
  • If certain marketing strategies should be mandatory, recommended, or optional.
  • Reserve prices and if applicable how they should be set.
  • The proposed sealed-bid auction process and if it can be streamlined.
  • If the local authority should be able to outsource the auction process.
  • Whether tenants should be able to sublet their tenancy.
  • If there is to be a minimum standard of pre-tenancy works intended for the landlord to carry out for the asset to be sufficient to take the property to auction.
  • If the local authority should be able to divide large premises and auction these off as separate sections.
  • Whether there should be any amendments to proposals for tenants to carry out alterations and fit outs.
  • If tenants should pay a rent deposit at three months’ rent or £1,000 (whichever is greater) instead of having guarantors.
  • If tenants should be liable to pay for repairs to the demised premises or to the standard shown by a schedule of condition.
  • Whether there should be a service charge regime.
  • Utilities that landlords would be obliged to supply.
  • The spreading of the costs of the high street rental auction process, specifically whether landlords or tenants should pay the costs associated with surveying the property, marketing, running the auction, solicitor’s fees, and searches and surveys.
  • The application of minimum energy efficiency standard requirements
  • Permitted development rights and specifically whether a new permitted development right should be introduced that would permit the change from the existing use of a high street premises to a suitable high street use for the period of the tenancy.

The proposed high street rental auctions scheme seems to bulldoze through the usual open market letting process. Forcing a landlord to contract with a tenant it has not chosen may result in poor estate management, an inappropriate tenant mix in any given location, reduced rental income in the long term and a strained landlord and tenant relationship from the outset. That could result in there being less investment in the high street, not more.

While the consultation states that the use of high street rental auctions “is not intended to apply in the case of properties whose landlords are actively seeking to fill their premises”, this fails to recognise the fact that many high street properties are vacant due to a lack of demand rather than a reluctant landlord, or because the landlord is keeping the property empty for the purposes of a proposed redevelopment or refurbishment.

Next steps

The findings of the consultation could lead to revisions to the Bill which improve the process for landlords. Fundamentally, however, the government is not seeking to revisit its core principles. It will set a new watershed in state intervention in the open market.

The Bill is now at an advanced phase, but it is hoped that the findings of the consultation will rebalance the negotiating powers of the parties and restore more of a common-sense approach.

Some in the industry question whether there will really be any appetite on the part of local authorities to engage with the high street rental auctions scheme. So while it is clear that the issue of the changing face of the high street is not an easy one to resolve, the proposed scheme seems to leave a lot of questions unanswered and does not appear to be easy to apply in practice.

An earlier version of this article appeared in React News