Will High Street Auctions bring about a renaissance of the High Street?
Introduction
Part X of the Levelling Up and Regeneration Act 2023 (the “Act”) introduced what the Conservative government hoped would provide a solution to all the boarded up shops, cafes and pubs on high streets across the country. It gave a permissive power to the relevant local authority to require vacant properties to be let through an auction process and, in effect, deprive the landlord of management of its own property.
To fall within the provisions of the Act, the high street in which a property is located has to be designated as a relevant high street or city centre by the local authority. There is a notice and consultation process which the local authority must carry out before the designation comes into effect. The property itself must also have been vacant for twelve months, or for 266 days over the last two years.
Many hoped that the new government would quietly deprioritise this policy and kick the necessary enabling legislation into the long grass. This has, however, not happened and The Local Authority (Rental Auctions)(England) 2024 (the “Regulations”) published in November came into effect on 2 December.
Preliminary Steps
If the local authority wishes to use its powers, it must first serve an initial notice on the landlord of the property stating the intention to initiate the auction process described below for the property. The period of the initial letting notice is 10 weeks, during which the landlord is subject to restrictions on letting the property. The landlord does have a power to appeal, but if the landlord does not appeal or is unsuccessful in its appeal, then a final notice is served.
The local authority must also instruct ‘a qualified person’ to survey the property to assess the works necessary, if any, to meet the minimum standard prescribed by the Regulations – principally relating to fire safety. The local authority must also conduct various searches in connection with the property, including local authority enquiries, land charges, drainage and flood risk. The Regulations do not state who will initially fund these costs, although there is power to require the successful bidder to do so.
Auction Process
Following service of a final notice, an auction process is instigated for the letting of the property. There is a strict timeline, and the landlord may face criminal sanctions for non-compliance. There are no corresponding sanctions for the local authority, who it is assumed will comply with the requirements.
The timeline is as follows:
| First week | The local authority serves notice of intention to auction the property for letting on the landlord. |
| Second week | The local authority serves a notice requiring the landlord to provide specific information about the property and also provides to the landlord the proposed tenancy terms. |
| Third week | The landlord can make representations on the proposed tenancy terms. |
| Fourth week | The local authority serves the auction pack on the landlord, including the tenancy contract and marketing brochure for the property. |
| Fifth to tenth week | Marketing period when the property is advertised and bids are collected. |
Process Flow Chart (credit: Gov.uk – High Street Rental Auctions: non-statutory guidance)
Bidding and selection
The landlord has the ability to select the bid it wishes to accept, but if it fails to do so within the required timeframe (being two working days after it received the bids from the local authority, at the end of the tenth or, at the latest before the end of the eleventh week of the process, then the local authority may select as successful the bid with the highest annual rent. If it is not reasonably practical to enter into an agreement with the highest bidder, the local authority has a discretion to chose a different bid, or no bid at all. Any superior landlord and lender are deemed to consent, so they do not have any part to play in the process.
The Tenancy Contract
This is found in Schedules 2 and 3 of the Regulations. Rather than include a template contract, the Regulations state that certain parts of the Standard Commercial Property Conditions must be disapplied and prescribe what provisions a tenancy contract should additionally include. It might have been simpler for the draftsperson to have produced a template lease, but the draftsperson presumably wanted to give the parties freedom to negotiate the specific terms of the tenancy where this did not actually conflict with the Regulations.
The tenancy is automatically contracted out of the Landlord and Tenant Act 1954, and the tenancy should contain a clause to that effect (although if this is not made clear in the tenancy, the omission will not give the tenancy statutory protection).
EPCs and planning
There is nothing in the Regulations to suggest the property will not be caught by the minimum energy efficiency standards, so if the letting proceeds and the property is sub-standard (i.e. currently has an EPC rating lower than E), the landlord may still face enforcement action for breach of the minimum energy efficiency standard regulations that prohibit the letting of sub-standard properties.
However, the Regulations do include changes to permitted development rights to allow affected properties to be used for the specified high street use envisaged by the auction for the duration of the tenancy granted following the auction process.
Conclusion
The implications of the Regulations are wide reaching. Not only can landlords be required to let their properties when they may not want to, third parties such as superior landlord and lenders are affected and the Regulations will override existing contractual relationships requiring consents
If there is any optimism to be found, then it may be in the usual place. Most local authorities will likely have too few resources to carry out or enforce the ambitious Regulations in practice. There is a fund established in connection with the Regulations, of a million pounds to be shared amongst the more than three hundred authorities in England – just over £3,000 per authority – but this will do little to defray the costs, and there are no profit-making opportunities in the Regulations for the local authorities themselves. Local authorities may therefore decide to ignore their new permissive powers – but that remains to be seen.
