According to figures from the British Retail Consortium, over the last five years the number of vacant shop units on the high street has increased by 6,000, with the current vacancy rate standing at 13.9%. Developments in planning legislation in recent years allow greater scope for changes of use of high street properties without the need for a new planning permission, but the vacancy rate remains high.

With little to indicate that the position will improve, high street rental auctions are a new discretionary power included in the government’s Levelling Up and Regeneration Bill. In a bid to reinvigorate the high street, they will give local authorities the power to market and let vacant high street properties on behalf of landlords.

The stated intention of the legislation is to increase co-operation between landlords and local authorities and to make town centre tenancies more accessible and affordable for tenants, including small businesses and community groups. The consultation document refers to a desire to provide assistance to local authorities to help regenerate rundown and problematic town centres where it is not possible to engage landlords in a constructive dialogue.

How will landlords be affected?

The powers granted to local authorities will give them very wide discretion to agree lettings which are not necessarily on the best commercial terms and which might also impose significant costs on the landlord. A landlord might be forced to accept a lower rent and weaker covenant than it might otherwise be willing to do.

The Government issued a consultation document in March this year which contained a detailed outline of how the rental auction process might work. The consultation closed in July and the results are currently being reviewed and analysed, with a view to formulating the secondary legislation. Once completed, it will be interesting to see what the results of the consultation exercise are in terms of fine tuning the legislation.

Proposed terms

Key features of the proposals in the consultation document are as follows.

– High street property is not precisely defined but the legislation is intended to be applicable to most commercial properties on high streets and in town centres.

– The power will apply to any vacant high street commercial property that has been vacant for longer than 12 months in a 24 month period – meaning that recent short term or seasonal lettings may not be enough to disapply the legislation.

– Before starting the auction process the local authority will need to serve a notice of intent which will give the landlord eight weeks to let the property before the local authority steps in.

– The landlord will have the ability to make representations about the auction but the final decision about the choice of tenant and letting terms will rest with the local authority. This is subject to a maximum length of lease term – the local authority will not be able to grant leases for longer than five years and all leases will have to be contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954.

– The highest rental offer may not necessarily be successful. The local authority might accept a lower rent for a number of reasons including the strength of the tenant’s business model, the benefit to the local economy from a local tenant or a use which would diversify the use profile of the high street or increase community cohesion – for example, a community group.

– There will be a minimum standard for the physical state and condition of the property. The local authority will have the power to require the landlord to pay for any repair and refurbishment works necessary to bring the property up to the minimum standard. This might include bringing the property up to minimum energy efficiency standards – or these might be disapplied.

– To minimise negotiation there will be a standard form agreement for lease which will be prepared by the local authority. This will be a concern to landlords unless these documents are in an institutionally acceptable form. Depending on a landlord’s funding arrangements they might also need to be acceptable to the landlord’s lender.

We shall be keeping a close watch on the development of this legislation and how best a landlord’s interests can be protected.

In the meantime, if you would like any further help or advice relating to the issues raised in this article, please get in touch with real estate partner, Robert Hill, by calling 01482 325242 or via email at robert.hill@andrewjackson.co.uk