Compulsory Rental Auctions: Targeting Disengaged High Street Landlords
All those owning commercial property should, by now, be aware of the legal powers handed to local authorities to auction empty premises in high streets and town centres up for further rental. Assuming councils will use their powers, we could see gradual regeneration of our town centres, but the process could prove complicated in practice.
According to statistics obtained by Glide under a freedom of information request to UK local councils, there were 172,217 empty commercial buildings in early 2020. The number has increased significantly since. According to government, by the end of 2023 one in 7 high street shops in England were closed; average vacancy rates were at 13.5% (17.9% in the North East and 16.2% in the West Midlands).
The commercial property reforms are aimed at what the government calls “disengaged landlords” who are sitting on empty properties.
The provisions came into force on 2 December 2024 under Part 10 of the Levelling-up & Regeneration Act 2023. The process is expected to take 22-24 weeks and is detailed in The Local Authorities (Rental Auctions) (England) and Town and Country Planning (General Permitted Development) (Amendment) Regulations 2024)
Radical reform
The local authorities’ new powers are undoubtedly among the most radical legal reforms in the commercial property sector in recent decades. LAs now have the power to intervene and require compulsory auction of empty or unoccupied commercial buildings.
‘Occupation’ means ‘substantial’ and ‘sustained’. However, the LA can only intervene and force an auction where:
· A ‘vacancy condition’ exists – this means the property must have been empty for a full year or for at least 366 days over the previous 2 years, and
· There is a ‘local benefit condition’ – requiring the LA to consider if an intended letting will benefit the local economy, society or environment.
Before initiating the process the LA must also:
· Designate a street or area where a High Street rental auction can be used, including a 28-day minimum community engagement period. Auctions won’t always be suitable, eg large former department stores which could be subject to long-term, complex redevelopment plans; and properties with significant structural issues
Obtain information about the premises in question (eg capturing this information in a vacancy register0 Engage with landlords to encourage cooperation between parties and Survey the premises to assess its suitability for high street use – and any works needed
The auction process itself begins with a 10-12 week notice period followed by a 12-week auction period. Following the auction, the successful bidder will be required to sign two agreements with the landlord: a tenancy contract governing required works ahead of the start of the tenancy; and the tenancy agreement itself.
The property owner must grant a lease of 1- 5 years to the successful bidder; but if they don’t - the LA will have power to do so instead.
What does this mean for me?
Commercial property owners with premises that have sat vacant on our high streets for extended periods should know that the LA could use its new powers to require a compulsory rental auction.
If you have any concerns about how the new powers could impact you and your property, particularly in the current economic environment, seek advice from specialist lawyers as to what action you should take. For instance, there appears to be nothing in the rules to pre-empt LA intervention, such as the owner offering short tenancies to avoid a compulsory letting.
The government has published helpful and detailed non-statutory guidance on the conditions and the process itself. The powers are new and complex and expert advice from experienced commercial property lawyers should be taken.
If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you