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Proposals within a major new piece of legislation - the Levelling-up and Regeneration Bill - to give local councils powers to let vacant High Street properties through mandatory rent auctions now have Royal Assent.
Under the Bill, a Local Authority will be able to designate a street or an area as important to the local economy because of the concentration of high street uses. The range of high street uses defined in the Bill is wide and includes shops, offices, restaurants and light industrial, but not warehouses. Once designated, vacant units are vulnerable to Local Authority intervention if it considers occupation would be beneficial to the local economy, society or environment.
Samantha Jones, an Associate Director and retail specialist at Prop-Search: “The measures that have been introduced are novel and radical, and the impact of High Street Rental Auctions (HSRA) on the commercial property market are potentially wide-ranging.”
A unit is at risk if it has been unoccupied for a year or, broadly, if it has been unoccupied for at least 366 days in the last two years. If premises qualify, the Local Authority can serve notice on the landlord, 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 eight weeks, lasts for at least a year and will have people regularly present at the property. If no tenancy has been agreed within eight weeks, the Local Authority can serve a final notice.
Once a final letting notice is in force, Local Authorities can then conduct a HSRA. Following the HSRA, the landlord would be required to would enter into a ‘tenancy contract’ with the successful bidder for a term of at least one year, but no more than five years – and if it is does not do so, the Local Authority can on its behalf.
At present however, there is no guidance as to the criteria under which rental offers will be assessed. For example, will the best offer merely be which tenant agrees to pay the most rent, or would other factors, such as a commitment by the tenant to renovate the premises be taken into account?
Samantha Jones adds: “Without further detail, in theory a prospective tenant could bid on a premises and offer £1 per annum in rent and, if they are the only bidder, be awarded a lease of the premises. This would have a very significant effect on rental values in the area, particularly if they are included as comparable evidence for the purpose of statutory lease renewals and, to some extent, rent reviews.”
In this context, landlords, property developers, and other stakeholders’, willingness to invest in the high street could be adversely affected. Landlords may think twice about carrying out significant renovation and improvement works, if their property is in an area which could be subject to HSRA. It may also simply encourage landlords to repurpose their stock – for example from commercial to residential – rather than having the effect of reviving the high street. This may, of course, be one of the Governments objectives for HSRA, albeit one that has not been expressly stated.
The Government’s reported objectives for HSRA is to incentivise landlords to do deals with potential tenants, in circumstances where stagnation may have taken hold of the market. Landlords, on the other hand, will argue that the reason why high-street properties are lying empty is not the levels of rent being sought, but instead, broader, social and economic factors.
Samantha Jones concludes: “The general consensus, however, appears to be that the HSRA process will fail to tackle the real issues affecting high-street retail as it continues to feel the effect of high business rates, rising energy costs and digital retailing. It is also worth noting that the new legislation merely gives local authorities the option to implement HSRA. Given the potential for litigation arising from the exercise of these new powers, and the existing resourcing pressures on local authorities, whether local authorities will choose to use them or not is another matter.
She adds: “Re-invigorating the high street is what all parties want but in a workable framework. Prospective tenants looking to bag a high street property at a Local Authority auction may 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.”