High Street Rental Auctions

Governments have been concerned about vacant units in high streets for a number of years and last year a law came into force which aimed to tackle that.

The new law enables councils, after a period of consultation with property owners, to serve an initial notice on the property owner which grants the landlord 8 weeks to enter into a “satisfactory” tenancy. Failing that, the council serves a final notice, the property owner has a period of time to serve a counter notice and possibly an appeal and then the auction period begins.

At this point the local authority can require property information from the landlord and can set the terms of any new tenancy, for example:

• the permitted use;
• the length of the new tenancy – between one and five years;
• whether the landlord can be obliged to bring the relevant property up to a minimum standard.

The anticipated terms of the tenancy are accessible on: High Street Rental Auctions: Non-statutory guidance – GOV.UK

There are different versions for shops, pubs, units within a shopping centre and part of a building but key provisions include a rent deposit (minimum of £1,000 or 3 months’ rent whichever is higher), a 4 week rent free period and a standard of repair limited by a schedule of condition.

There’s a period of time to enable the local authority to be ready to start marketing the property and a 5 week marketing period.

The local authority then hopes it receives valid bids from prospective tenants. If there are multiple valid bids the landlord can choose the one it prefers but failing that the local authority may either not accept any or chose the one with the highest rent (subject to exceptions).

The successful bidder is required to pay the local authority’s costs.

This process gets round consents that may usually be required, for example by a freehold owner (if the landlord owns under a long lease) or a mortgagee by deeming that they’ve given consent.

A tenant acquiring a tenancy through this process does not acquire security of tenure so a tenant will need to negotiate a new lease from a starting position if its tenancy is successful and it wishes to continue after the initial agreement.

The local authority can require the landlord to provide information and can require entry onto the property to carry out surveys and it is a criminal offense to obstruct.

If the auction is successful the landlord has 3 months in which to carry out any works required to bring the property up to the minimum standard specified.

Given the costs involved from all the processes are involved it will be interesting to see how this works in practice. If the local authority cannot keep its costs down, then those costs are likely to be a significant barrier to any new start up business considering placing a bid – almost certainly any bidder will want to know in advance of a bid exactly what those costs will be.

It is clear that all landlords/freeholder owners of vacant units should ensure that their address details for service of notices are up to date at the Land Registry and elsewhere and should take immediate action if any notice is received.

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