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Since legislation was introduced to allow Local Authorities to auction privately owned, 'persistently' vacant High Street premises, the market has been curiously waiting to understand the finer detail says commercial property agent Prop-Search. The Local Authorities (Rental Auctions) (England) and Town and Country Planning (General Permitted Development) (Amendment) Regulations have now been published and will come into force on 2 December 2024.
The Regulations build out the powers and process for the High Street Rental Auction scheme (HSRA), working through steps and obligations for both the Local Authority and the landlord. The new regime will apply to commercial premises in England which are within an area the Local Authority has designated as being a high street or town centre; been unoccupied for the whole of the last year or for at least 366 days in the last two years; is suitable for ‘high street use’ that would benefit the local economy, society or environment.
Samantha Jones, an Associate Surveyor and retail specialist at Prop-Search, said “The Government has stated that the target areas are those in economic decline with high vacancy rates and landlords not actively taking steps to rent the property. On that basis, we don’t expect the HSRA process to be used for all vacant properties which meet the conditions above, particularly where landlords are proactive in seeking new occupants.”
The new regulations include a week-by-week timetable for the auction process which covers giving notice to the landlord of the intended auction, producing the auction pack, marketing the property and concluding the auction. The timetable is tight with criminal offences applied to certain acts of landlord non-compliance.”
To start the process on qualifying properties, the Local Authority must serve an initial notice on the landlord. During this time 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 which starts the rental auction procedure.
In the first four weeks, landlord would be required to provide proof of title, responses to general pre-contract enquiries and copies of any relevant certificates such as EPC’s, gas and electrical safety certificate and asbestos reports. The Local Authority would be responsible for carrying out searches, surveying the premises and preparing a schedule of work to ensure the property meets the ‘minimum standard’ for letting, with the landlord responsible for undertaking those works within three months.
‘Minimum standard’ is defined in the Act and includes no significant water ingress; all fire safety requirements are in place; and mains water, gas and electricity are connected or capable of reconnection without significant expense to the tenant. The regulations set out the terms of the agreement for lease, including payment to the tenant of liquidated damages of £55 per day if the works are not finished by the landlord within three months.
Samantha adds: “It is important that the "minimum standard" is not confused with the minimum energy efficiency standard. Last year's consultation said the previous Government were considering disapplying the minimum energy efficiency standard for tenancies entered into under these rules, however no such exemption has been included in the regulations. Therefore, landlords with properties with EPC ratings of F or G will also have to carry out energy improvement works to bring the accommodation up to the minimal acceptable rating of E.”
Then follows a six week marketing period, during which time interested parties must submit a bid to the Local Authority stating their annual rental bid, proposed use of the property and include a signed copy of the tenancy contract. There is no minimum rental figure set out in the regulations, so it seems a bidder could offer a nominal sum well below market value. By the end of the 11th week, the Local Authority must give notice to the landlord that all bids are in and the landlord then has only two working days to serve notice on the Local Authority of its choice of successful bid.
The landlord is not obliged to choose the highest rental bid but if it fails to serve notice of the successful bid by the required deadline, the choice of successful bidder then falls to the Local Authority which can choose not to accept any bid; or is required to choose the highest rental bid.
The term of the tenancy, which must be between one and five years, will be excluded from the security of tenure provisions of the Landlord & Tenant Act 1954 so the tenant won’t have a statutory right to renew the lease at the end of the term. There are also provisions for the Local Authority to charge the successful bidder certain costs associated with the process, such as legal and surveyors’ fees and the costs of preparing the tenancy documents. There is also a fixed four weeks rent free period and tenant must pay a rent deposit of the higher of £1,000 and three months rents.
Samantha concludes: “With one in seven high street shops reported to currently be closed, HSRAs could deliver a much-needed boost to the local economies of neglected high streets and town centres. The question however remains: are we genuinely operating within a market of idle landlords, who require this intervention? If the Regulations only offer a solution for the minority and do not tackle the root cause of a greater economic issue around demand and affordability, both for consumers and occupiers, these detailed provisions may not be the 'breath of new life' the Government envisages.”