High street rental auctions – the government's response to a new power for local authorities to rent out vacant commercial property

Recently, Lucie Allen, Senior Associate in the Real Estate Development team, published a blog for Lawyers in Local Government (LLG) on high street rental auctions, with a detailed look at a new discretionary power for local authorities to rent out persistently vacant empty shops within Part 10 of the Levelling Up and Regeneration Act 2023 (the Act). 

Lawyers in Local Government (LLG) on high street rental auctions

The government has now published its technical consultation response. The accompanying press release states that the new powers will be in force by the summer, with ten areas taking part in the High Street Accelerators pilot scheme. This consultation response was published prior to the general election announcement being made so we will need to wait and see if this date is pushed back. 

A summary of what we can expect is set out below:

1. Detailed guidance and templates to simplify the process.
2. Local authorities will be able to outsource not only the marketing and auction aspects, but 'all or part of the process'.
3. The auction pack will need to include:
   1. a schedule of condition
   2. the ACV status of the property
   3. details of any BID levy payable
   4. title documents
   5. draft agreement for lease and lease
   6. local authority, drainage and water searches
   7. health and safety information pertaining to the property (electrical certificates, fire risk assessments and asbestos management plans)
   8. EPC (if available)
   9. replies to enquiries
4. There will be a recommended minimum marketing period of 6 weeks, with a mandated minimum period of 5 weeks. The property must be marketed on the relevant local authority's website and advertised online on at least one major commercial property website (the government will list these sites in its guidance).The guidance will also set out discretionary marketing that the local authority may choose to utilise, such as access to view the property, listing in local newspapers, promotion on social media, and a 'to let' board displayed outside the property.
5. No reserve price will be set to ensure that the rental level is determined by the market. A rent free period of 4 weeks will be included for tenant fit out works.
6. A sealed bid auction process will be run so that 'landlords can carry out a holistic assessment of all bids in the round'.
7. Marketing and auction costs are to be paid for by local authorities; legal and search fees are to be paid for by the tenant. The government will be providing local authorities with £2million of additional funding to cover these costs.
8. The landlord must bring the property up to the 'minimum standard' so that the property is safe for use, with liquidated damages payable at a rate of £55 per day if this is not complied with.
9. Assignment of the lease will be permitted with the landlord's consent (such consent not to be unreasonably withheld or delayed), but subletting will not be permitted.
10. The tenant will be permitted to carry out internal non-structural alterations required for its fit out works without landlord consent. External and structural alterations will require landlord's consent (such consent not to be unreasonably withheld or delayed). Pubs will have additional protections to retain specific features, and any removal will be at the absolute discretion of the landlord.
11. A rent deposit will be payable by the tenant to the greater of £1000 or 3 months' rent.
12. The tenant's repairing obligation will be limited by reference to the schedule of condition prepared as part of the auction pack.
13. The landlord will be able to implement a service charge if required.The landlord must ensure that the property is served by gas (if present), electricity, and water. The landlord must act reasonably if a tenant requests permission to bring telecommunications to the property.
14. There will be no exemption from minimum energy efficiency standards, recognising the need for government to be consistent with this policy and its aims.
15. There will be temporary permitted development rights to support the high street rental auction policy for the duration of the lease.There will not be a further permitted development right to permit a permanent change of use.

View the government's consultation response.