High street rental auctions: Government consultation process

The Government has launched a 12 week consultation on matters relating to the proposed High Street Rental Auction of commercial property in England. Its purpose is to seek views on policy options for the auction process and related matters. The consultation closes on 23 June 2023.

High Street Rental Auctions

The proposed changes would grant local authorities powers to reinvigorate high streets by allowing them to fill vacant commercial properties through high street rental auctions and requiring landlords to enter into a new lease with the successful bidder. Qualifying property must have been vacant for more than one year.

Please see our Insights article on this topic for more information:

Lot on the High Street: auction powers for local authorities over vacant commercial properties

Consultation

The consultation is intended to gather industry views on the following aspects of the auction process:

• the auction element of the High Street Rental Auction process;
• the standardised lease (including agreement for lease and lease);
• the costs of running a High Street Rental Auction;
• the disapplication of Minimum Energy Efficiency Standards within Energy Performance Certificate requirements; and
• Permitted Development Rights.

Auction process 

The consultation will inform how the auction process will work and how successful bidders are identified. The Government’s stated objective is to encourage the landlord to be directly involved in the process and this includes a number of landlord safeguards, such as the landlord having discretion over the preferred tenant characteristics in any advertising literature and the landlord having the power to select the successful bidder. 

Standardised lease

It is envisaged that the successful auction bidder would enter into an agreement for lease and a lease with the relevant landlord. These documents would be in a standard form with the consultation informing which lease terms would be either fixed or flexible. The current proposal is for the standard lease term to be not less than one year, but not more than 5 years, with any lease being outside of the security of tenure protection of the Landlord and Tenant Act 1954. The rent would be determined through the rental auction process and the ‘high street use’ would need to be prescribed by the local authority ahead of the auction. 

The agreement for lease would cover works that are required to the property to meet a minimum standard, being a condition which is safe for occupation and secure. It is envisaged that these will be costs borne by the landlord. 

Auction costs

The consultation has invited responses as to which party should pay the following costs associated with the auction process: surveying the property, marketing, running the auction, solicitor’s fees and searches/surveys to be included in the auction pack. 

Disapplication of Minimum Energy Efficiency Standards

The Government’s position is that many vacant buildings within the scope of the legislation may be dilapidated and of a low energy efficiency standard. It is proposed that the current requirements to meet a minimum EPC rating of ‘E’ would be disapplied for the lease term, meaning that properties meeting an ‘F’ or ‘G’ rating could still be let within the auction process.

Permitted Development Rights

It is proposed that a new Permitted Development right would be introduced to allow the temporary use of a property for a suitable high street use which would be determined by the local authority. The property would revert to its former use at the end of the period of the lease, unless otherwise agreed and with a relevant planning permission having first been obtained. The Government has proposed that the Permitted Development right would not set any size limit on the property and would also apply to listed commercial buildings.

Conclusion

The consultation is an opportunity for commercial landlords to provide their views on the practicalities of the auction process and, crucially, on the lease terms and costs which may be imposed on them by local authorities. The Government is keen to stress that it will not seek to target landlords who are proactively trying to let their vacant units and it may genuinely feel that it is assisting landlords by removing some of the red tape barriers, such as energy efficiency and planning use requirements. However, many landlords will be inherently nervous about the uncertainty and cost of the auction process, the identity of any successful tenant bidder and the role of local authorities in imposing terms on the use of its own property. Landlords would be well advised to closely watch the development of this legislation and consider engaging with the consultation before it closes on 23 June 2023. 

A link to the consultation is included below:

High Street Rental Auctions Technical Consultation - Department for Levelling Up, Housing and Communities - Citizen Space