What are High Street Rental Auctions?
The Levelling Up and Regeneration Act 2023 (“LURA”) introduced the concept of High Street Auctions. It operates to give local authorities the power to auction the rental rights of privately owned commercial high street property that has been vacant for longer than 12 months in a 24-month period with the aim of regenerating and driving economic growth in underperforming town centre areas.
Why are they relevant?
The aim is to generate investment though a combination of compulsory rental powers and a relaxation of planning laws and third party consent requirements. If a tenant bids for such a property knowing that it can transact quickly without delay and benefit from a planning change of use at the outset to enable its business to proceed, this removes the time consuming, risky and expensive planning and consent procedure that a tenant must undertake to business in town centres.
What properties will be affected?
Properties become “qualifying high street premises” for high street rental auctions if they are situated on either a designated high street or in a designated town centre.
A local authority may designate a street as a high street if it considers that the street is important to the local economy because of a concentration of high street uses such as consumer retail, community use, provision of services to visiting members of the public or industrial processes of a sort that are compatible with those uses.
A local authority may also designate an area within its area as a town centre if the area is characterised by a network of streets and is important to the local economy because of a concentration of high street uses within the area.
What properties will not be affected?
Properties are not qualifying high street premises if they are or were used wholly or mainly as a warehouse. This means that as currently provided by LURA, warehouses located in designated areas will not benefit from or be affected by this legislation.
What could trigger a High Street Auction?
There are two triggers:
- Vacancy Condition - This will apply if the relevant qualifying premises have been vacant for the whole of one year or were vacant for 366 days during a 2-year period; and
- Local Benefit Condition - This will apply if the local authority considers that use and occupation of the premises for a suitable high street use would be beneficial to the local economy, society, or environment.
If the above triggers are satisfied, the local authority has the power to serve an “Initial Letting Notice” on the landlord of qualifying high street premises. The notice will expire when a “Final Letting Notice” of the premises takes effect or on the expiry of 10 weeks from the date of the Initial Letting Notice. The local authority then has the power to serve a Final Letting Notice immediately following service of an Initial Letting Notice or within 8 weeks of expiry of the Initial Letting Notice.
What is the effect of an Initial Letting Notice or a Final Letting Notice?
The effect on the owner of land in receipt of either an Initial Letting Notice or a Final Letting Notice is that it cannot grant or agree to grant any tenancy or lease of the premises or enter into any other agreement granting rights over the premises without the prior consent of the local authority. Any agreement entered into in the absence of such consent will be void prior to expiry of the relevant notice.
When a Final Letting Notice has been served, in addition to the prohibition on dealing, an owner
a) cannot carry out any works or development to the property without the written consent of the local authority and any works carried out in contravention will be a criminal offence.
b) can serve a counter notice within 14 days of the effective date of the Final Letting Notice advising that it intends to appeal if the notice is not withdrawn and specifying the grounds for such appeal.
A Final Letting Notice expires 14 weeks following the date on which it takes effect but may be extended by 28 days if the Landlord serves a counter notice and initiates an appeal against the notice. The appeal will be tried in the local county court and must be disposed of by either revoking or confirming the Final Letting Notice.
What are the auction and tenancy powers?
The local authority may arrange for the rental auction to be carried out if it is no longer possible for the Final Letting Notice to be revoked on appeal and no tenancy has been granted with the consent of the local authority, nor is there any other valid agreement in place. A local authority that served the Final Letting Notice may, following the expiry of statutory timeframes, enter into a “tenancy contract” on statutory terms with a successful bidder following the rental auction acting on behalf of the owner of the property. Any third party consents, such as that of a lender or superior landlord, are deemed to have been provided in these circumstances, thus avoiding the delay process in obtaining consents to a transaction. Any high street auction tenancy will be automatically excluded from the security of tenure provisions of the Landlord and Tenant Act 1954 meaning that the tenant will have no right to remain beyond the expiry of the contractual term.
Conclusion
This legislation could introduce liquidity to neglected or undeveloped high street properties. Property owners will need to respond quickly to any statutory notices to protect their position following receipt, if they do not wish their vacant high street property to become the subject of a compulsory rental auction. Lenders will need to pay attention to relevant timeframes where borrower clients are holding such property portfolios, as their enforcement control may be prejudiced in respect of compulsorily auctioned secured assets.
How 3CS can help
For legal help and advice with any property-related legal matter, please get in touch with your usual 3CS contact.
