Summary
In the Queen's Speech 2022, the Levelling Up and Regeneration Bill (the Bill) was announced. This Bill is part of the government's wider initiative to "level up" the country and specifically to devolve more power and provide more tools to local authorities to enable them to make their areas and communities better places.
For landlords, the Bill includes provision for local authorities to instigate high street rental auctions of selected vacant commercial property on high streets and in town centres.
Rental Auctions
A "rental auction" is defined in the Bill as the process of finding persons who would be willing to enter into an agreement for lease and ascertaining the premium those persons would be willing to pay. The specific process to be followed in respect of the auction itself is to be the subject of further regulations. The key provisions governing this new power for local authorities is provided for in Part 8 of the first draft of the Bill. We have summarised below the key features of the current draft of the Bill.
What premises will be eligible?
- Local authorities will be able to designate a "high street" or a "town centre" for the purposes of the Bill where there is a concentration of high street uses of premises there.
- A "high-street use" includes those more typical and specific categories of use such as shops, offices, restaurants, bars, pubs and cafes but also less conventional and generic uses such as use for public entertainment/recreation, communal halls, manufacturing and industrial process (if it can be carried out in proximity to, and compatibly with, the aforementioned uses).
- Properties that may be subject to the rental auction process must be qualifying high-street premises ie situated on a designated high street or in a designated town centre and suitable for high-street use.
What conditions must be satisfied?
To serve an initial notice to instigate the rental auction process, the relevant property must first satisfy the vacancy condition and local benefit condition:
- Vacancy condition: the premises have been vacant for one year ending on the previous day or, in the previous two years ending on the previous day, has been vacant for at least 366 days.
- Local benefit condition: the local authority considers that the occupation of the premises for a suitable high-street use would benefit the local economy, society or environment.
What is the procedure?
- The local authority may serve an initial letting notice on the landlord of the premises to commence the rental auction process. This notice will expire when a final letting notice takes effect, or after 10 weeks starting on the day the initial notice takes effect.
- Once an initial notice has been served, the landlord is not then permitted to let or grant a licence of the property without the consent of the local authority.
- The local authority may serve a final notice on the landlord after the period of eight weeks has elapsed beginning on the day the initial notice took effect (assuming no other tenancy has been entered into in the interim). This notice will expire after 14 weeks commencing on the day it takes effect (if not withdrawn or revoked on appeal).
- No private lettings or works (including alterations/removal of fixtures and fittings) to the premises are permitted without the consent of the local authority once a final notice has been served.
Can a landlord object?
Following service of a final notice, the landlord may serve a counter-notice within 14 days beginning with the day the final letting notice took effect. The counter-notice must state that the landlord intends to appeal it and specify the ground for appeal. The ground relied upon must be one of those prescribed in part 1, schedule 15 of the Bill, which broadly are as follows:
- The vacancy condition was not met on the day the initial notice was served.
- The local benefit condition cannot reasonably be said to have been met.
- The suitable high-street use identified in the final letting notice cannot reasonably be considered suitable.
- Consent to a letting or licence should have been given while an initial letting notice was in force and was not so given.
- The landlord intends to carry out substantial works of construction, demolition or reconstruction and requires possession of the premises to do so.
- The landlord intends to occupy the premises for its business use or residence.
If the final notice is not withdrawn, the landlord may appeal to the County Court within 28 days of the day on which the counter-notice was received by the local authority. The Court will either revoke or confirm the final letting notice.
The above represents a brief summary of the key provisions introduced by the Bill and further regulations and amendments are expected to be introduced as the Bill progresses through Parliament.
Our comment
The introduction of rental auctions represents a novel and sweeping move on the part of the government to tackle the matter of vacant premises on high streets and in town centres. Tenants may welcome the prospect of local authority led auctions which may both free up the availability of property and may also result in lower rents than in the context of lettings negotiated on the open market. On the other hand, landlords may be troubled by the compromise on the ability to deal with premises freely and to only accept lettings that are commercially acceptable to it.
We will issue further updates on the Bill as additional information is released.
