Is The High Street Up For Auction?

The draft Levelling-up and Regeneration Bill contains proposals for a high street rental auction process giving local authorities powers to “bring empty premises back into use and instigate rental auctions of vacant commercial properties in town centres and on high streets”.

If a high street unit (which can include shops, offices, restaurants and light industrial) is unoccupied for a year, and the local authority considers the unit to be beneficial to the local economy, it may decide that the unit should be subject to a rental auction.

Broadly, the process would involve:

1. The local authority serving an initial letting notice on the landlord which would last for 10 weeks. The landlord is only permitted to let out the unit with the local authority’s consent during this period. Any new letting must be for a minimum of a year.
2. If the unit is not let within 8 weeks of the initial letting period, the local authority can serve a final letting notice on the landlord.
3. During the final letting notice period, the landlord cannot let the unit or carry out works to the unit without the local authority’s written consent and the local authority can arrange a rental auction of the unit.
4. If there’s a successful bidder, the local authority will ‘stand in the shoes of the landlord’ and grant a lease of the unit for 1-5 years. The lease must be excluded from the Landlord and Tenant Act 1954. The lease will be binding on the landlord even though it’s not part of the negotiations (including negotiating the amount of rent!).
5. A landlord can appeal under certain grounds for example:
   • the unit is not vacant or suitable for the local authority’s intended high-street use;
   • the local benefit argument is not met;
   • the landlord intends to carry out substantial works of construction, demolition or reconstruction;
   • the landlord intends to occupy the unit for the purposes of business or as a residence; and
   • the local authority failed to consent to a letting during the initial letting notice.  

The process is by no means a finished article – who will decide who wins, what would the lease look like, is there a tenant application criterion that should be met…

Yes, the high street needs some intervention but is this the solution – forcing a landlord to enter into a contractual relationship with an unknown tenant? The proposals could manipulate a free open market process and mean the landlord must accept a tenant it may not have chosen and with low covenant strength.

Do the proposals address the point that the high street is empty because of low demand (with retailers and consumer habits evolving)?

Will the proposals instigate landlords to have more of an active role in reviving their high street unit – or will it have the opposite effect if the unit is at risk of intervention and being held for auction?

Is the high street better equipped for other uses in today’s market?

The Bill is in draft stage but will be watched (and no doubt, argued) closely by those in the industry.