In the latest edition of Lay of the Land, Anya Newman provides an overview of this new power and what owners of empty town centre properties can do to avoid their assets being subject to a compulsory auction.
On 2 December 2024 Part 10 of the Levelling-up and Regeneration Act 2023 (the uninvitingly nicknamed “LURA”) came into force. The powers contained in Part 10 give Local Authorities the ability to auction off leases on High Street premises that have been vacant for more than a year. These auctions are called High Street Rental Auctions (“HSRAs”). Local Authorities may even apply for a so called “new burdens payment” during the initial implementation phase (until 14 January 2028), giving them up to £5223 per property to offset marketing, auction and legal costs.
The Government Guidance envisages that this power will be an important weapon in the armoury of Local Authorities when trying to revitalise their town centres. The tenancies which arise as a result of HSRAs will be for a term of between 1 and 5 years and excluded from security of tenure.
This article will examine the process up to auction, noting the basic requirements for HRSAs and how a property owner might successfully avoid them.
Will the Power be Used?
The Guidance accompanying Part 10 suggests that Local Authorities should first consider whether there is likely to be interest from prospective tenants were the premises available at a fair market rent and at the Minimum Standard. One might consider it likely that, if the premises were of interest to tenants, the owner would have already rented them out. At first blush therefore, HSRAs seem to have questionable utility. However, there will be some instances where the landlord is simply disinterested in the property and not engaging in any process for letting it. Further, where lender conditions limit a tenancy taking place at a fair market rent, the HSRA may be of real use because the process is considered to have the deemed consent of lenders and superior lessors (see s208). This, combined with the potential financial award may significantly increase the likelihood of a Local Authority using the power.
Local Authorities are warned to consider carefully the type of property with which they are dealing. It is specifically advised that the HSRAs might be unsuitable for larger units, such as closed department stores or premises with significant disrepair issues. As part of the auction process the Local Authority will identify works required to be done by the landlord. Local Authorities are also reminded of their powers to serve Maintenance Notices (s215 Town and Country Planning Act 1990) or to compulsorily purchase property.
What are the Basic Requirements?
In order for a property to be considered for a HSRA, a property must be:
- Within a designated “High Street” or “Town Centre”;
- The Local Authority must consider that the property is suitable for “High Street Use”;
- The Local Authority must consider that occupation of the property would be for “local benefit”;
- The property must satisfy the “Vacancy” provision, and;
- The property must not be used wholly or mainly as a warehouse.
High Street Use
At the heart of the requirements is ‘high street use’. This is defined in s192 and includes use of premises as a shop or office, for the provision of services to persons who include visiting public, as a restaurant, bar, public house, cafe or other establishment selling food or drink for immediate consumption, for public entertainment or recreation or as a communal hall or meeting place. Heavy industry, warehousing and residential use are therefore not high street uses.
Local Benefit
The local benefit condition will be satisfied if the Local Authority considers that the occupation of the property for a suitable high street use would benefit the local economy, society or environment (see s194).
Designated High Street or Town Centre
A Local Authority may designate an area or street as a High Street or Town Centre where it considers that it contains a concentration of high street uses. To be designated a High Street the street must be important to the local economy because of its high street uses. To designate a Town Centre, the built environment should be characterised principally by a network of streets and the area should be important to the local economy due to its high street uses. There are rules concerning the definition of a street and the ability to designate and vary designations. See s191, 215 and 218 of LURA.
The Local Authority must maintain a public list and map of High Street or Town Centre designations in force. A designation is to qualify as a local land charge and will be discoverable by a local land charges search. See s191(5) and (6). The fact of designation itself may therefore influence property value or cause some issues with transactions as lenders become aware of the deemed consent condition.
Vacant
Section 193 explains that the vacancy condition is satisfied when the property has been unoccupied for the whole of the previous year or for at least 366 days during the previous 2 years. Premises are considered to be occupied on days when a tenant moved in or out, so days with part occupation count towards occupation. Local Authorities will count days prior to the coming into force of Part 10 on 2 December 2024, so certain properties are already at risk.
Residential use by a person living in a property not designed or adapted for residential use will not count as ‘occupation’ (s193(4)). Where occupation is in dispute, the owner will have to show that the occupation involved the use of the premises for a substantial and sustained activity involving the regular presence of people (s193(7)).
What can Property Owners do to Avoid an Auction?
Fortunately, there are several ways for clients to avoid their properties being subject to HSRAs, including:
- Under r3 of the Local Authorities (Rental Auctions) (England) and Town and Country Planning (General Permitted Development) (Amendment) Regulations 2024 (“the Regulations”) the Local Authority must publish a proposal before they are able to designate a street or area as a High Street or Town Centre. The regulations set out the information which must be in a designation proposal and there must be a period of at least 28 days during which time representations can be made about the proposal. Thus, it is possible to challenge the designation which provides the foundation for HSRAs.
- Once an area is designated, the Local Authority can begin the HSRA process by serving an Initial Notice. This is Form 1 in schedule 1 of the Regulations. The form must be served on the “landlord” (see s218(6)). Both the vacancy condition and the local benefit condition must be met by this point. Therefore, landlords might raise any arguments that they have concerning occupation periods at this early stage as it may result in the withdrawal of the notice. Even the Initial Notice is a local land charge and will expire either when it is withdrawn, when a Final Notice is served or after 10 weeks.
- The notices served to initiate the process will be subject to tight regulation (s214). Notices should therefore be checked thoroughly to ensure compliance with the regulatory requirements.
- Notices need to be served on the correct party, referred to as the ‘landlord’ if the recipient is not the person entitled to possession of the premises with a sufficient interest to grant a tenancy of one year or more, the notice is likely not served on the correct person.
- Following service of the Initial Notice landlords will have an 8-week grace period to find their own tenant and thus defeat the vacancy condition. However, landlords should be aware that during the grace period, Local Authorities must be asked for consent before a landlord can grant or agree to a tenancy or agreement entitling someone to occupy the premises.
- If no (approved) occupier is found and the Local Authority wish to continue with the HSRA process, they will serve a Final Notice after the 8-week grace period ends but before the Initial Notice expires. There is therefore a 2-week window for service of the Final Notice. Landlords should check the timing of notices to see if there has been a delay by the Local Authority meaning that they have to re-serve the Initial Notice. There are restrictions on property works and lettings once an effective Final Notice has been served (see s199 and s200). The form of the Final Notice is at Form 2 in schedule 1 of the Regulations.
- A Final Notice can be appealed by Counter Notice (see Form 3 of schedule 1 to the Regulations). The landlord has just 14 days to serve the Counter Notice beginning with the day the Final Notice takes effect; the landlord must include details of their grounds for appeal, the scope of which are set out at schedule 20 of LURA. As you would expect, they include challenging the existence of the basic requirements for a HSRA in addition to the landlord arguing that it intends to do substantial works on the property or to occupy it themselves. The Local Authority then has 14 days from receipt of the Counter Notice to serve a withdrawal notice to prevent an appeal. It may ask for proof of the matters set out within the Counter Notice, so landlords should have this to hand in a format that they can easily send to the Local Authority. See s201 in relation to Counter Notices.
- If no withdrawal notice is served by the Local Authority, the landlord can bring an appeal to the County Court. This must be on the grounds specified in the Counter Notice, so it is important that these are thorough and well presented. Landlords should consider seeking advice at an early stage. The time limits for appealing are tight: the landlord has only 28 days from the day which the Local Authority received the Counter Notice. See s202.
As can be seen, there are several different routes to challenge or avoid a HSRA taking place. Landlords should ensure that they do work with the Local Authority’s process as not doing so can result in fines. Local Authorities might find the process useful to spur a landlord into action but when acting for the landlord, even when no tenant can be found, it is still possible to try to prevent a property from going …under the hammer.
Materials
The process for HSRAs is detailed and complex. This article is not intended to be a definitive guide. If you have any queries about HSRAs in relation to a particular property, please contact Anya Newman.
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Whilst every effort has been taken to ensure that the law in this article is correct, it is intended to give a general overview of the law for educational purposes. Readers are respectfully reminded that it is not intended to be a substitute for specific legal advice and should not be relied upon for this purpose. Please also note that this article represents the opinion of the author and does not necessarily reflect the view of any other member of chambers.
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