Consultation: High Street Rental Auctions

The Government has launched a consultation seeking views on matters that will form part of the High Street Rental Auction policy, introduced in the Levelling Up and Regeneration Bill. The policy will give local authorities a power to require landlords to rent out persistently vacant commercial properties to new tenants.

The consultation notes that:

• this measure will be an addition to a range of tools local authorities might use when attempting to regenerate an area;

• the policy will seek to make town centre tenancies more accessible and affordable for tenants, including small businesses and community groups; and

• the Government does not expect the policy to apply to properties "with proactive landlords unless those landlords are struggling to find a tenant and would benefit from the High Street Rental Auction process and local authority support".

The proposed scheme

The proposed auction process would involve properties which meet certain vacancy conditions; the property must have been unoccupied for 12 months continuously, or 366 days in a 2-year period​.

Following service of an 'initial notice' by the local authority, landlords would then have an eight week grace period to enter into a tenancy which meets certain conditions and has the consent of the local authority. If the landlord fails to let the property within the grace period the local authority can serve a final notice and, provided no counter notice is served (which can lead to an appeals process), the auction process can begin and the local authority then has 12 weeks to (1) auction the premises (2) complete an agreement with the tenant.

Although subject to consultation, the Government believes a sealed bid auction process would work best. Prospective tenants will be required to submit details of the rent they are willing to pay and their proposed use (supporting evidence is encouraged).  The landlord will be provided with a copy of all bids and will be free to choose its preferred bidder. If a landlord does not engage the local authority will assume the landlord's role, but will be obliged to choose the highest rental bidder.

Once successful, a bidder will be required to will enter into two legal agreements with the landlord. An agreement for lease and a lease (which does not have security of tenure).  The Bill deals with several key terms of the lease and the consultation notes that it is envisaged regulations will include 'standard forms of the legal agreements which the local authorities can use'. 

The consultation seeks views on various aspects of the proposed policy and its implementation, including:

• the level of non-statutory guidance; the content and timing of the auction pack; the marketing strategies to be adopted; whether there should be a reserve price, the auction process and possible outsourcing of the process;

• the required condition of the property and who should meet various costs both in relation to works to the property (for example in bringing it up to a minimum standard) and the auction process.  The consultation envisages that the landlord will meet the costs of bringing the property up to a minimum specified standard initially but that the tenant will meet its own fit out costs. Parties will be required to meet their own legal fees and the tenant would be responsible for preparing a schedule of condition.

• Views are sought on whether a tenant should be able to sublet and whether larger properties can be subdivided. It is proposed that a tenant will be required to pay a three month rent deposit.  The approach to repairs, service charge and utilities is also considered.

In addition, the Government proposes disapplying the Minimum Energy Efficiency Standards to 'ease the burdens on landlords'. An Energy Performance Certificate would still be required but the Government notes this could be at levels F or G. Changes to Permitted Development Rights are also proposed.

Safeguards for landlords

The consultation sets out what it sees as various safeguards for landlords which have been built into the process.  These include:

• the eight week grace period following service of the initial notice;

• the landlord's right of appeal against the final notice;

• the requirement for local authorities to have regard to representations made by the landlord on specified aspects of the rental auction process and certain terms of the lease;

• the process for deciding the successful bidder at auction will allow for input from a landlord;

• the requirement for a rent deposit;

• the fact the landlord's usual legal remedies will exist (such as court action or forfeiture) should the tenant not comply with the terms of the lease.

Timings

The proposals relate to England only.  The consultation will close on 23^rd June 2023 and must be responded to via Citizen Space.