Part 10 of the Levelling-up and Regeneration Act 2023 introduced High Street Rental Auctions, giving local authorities new powers to designate a street as a high street or an area as a town centre, where it considers it important to the local economy because of the concentration of high street uses of premises. Once designated, the local authority can deploy powers to auction off premises that have been empty for a year or more or at least 366 days in the preceding two-year period (the vacancy condition), where the local authority considers that the occupation of the premises for a suitable high-street use would be beneficial to the local economy, society, or environment (the local benefit condition).  Regulations will come into force on 2 December 2024 that set out the detail of the new procedure, with further guidance promised on the same date.

Many will be able to readily identify a high street in need of rejuvenation but the concept of a "town centre" is perhaps less obvious. The legislation describes it as a "built environment characterised principally by a network of streets" so there is speculation as to whether it could include out of town retail parks. Unfortunately, representatives at the event were unable to give a definitive answer, commenting that the new powers were not intended to catch out of town retail but that they potentially could in rare circumstances.

Where a local authority makes a proposal to designate a street or town centre, the period for representations in response could be a little as 28 days. Once designated, the local authority may serve an initial letting notice on a landlord of premises considered suitable for high street use, where it appears that premises meet the letting condition and local benefit condition.  The landlord has a grace period of at least 8 weeks to find itself a tenant of its choosing (albeit that consent of the local authority will be required).  Whilst that may seem reasonable, if premises have remained empty for an extended period, there is likely to be a reason for it. When the final notice of auction is served, the landlord has just 14 days to serve a counter notice, with only limited grounds to appeal. Landlords would be wise to ensure that vacancy rates of high street premises and post to their registered offices are carefully monitored.

Once the auction process is in motion, a landlord must provide extensive information in relation to the property within a week of request. This information includes energy performance certificates, safety certificates, fire risk assessments, asbestos surveys and responses to pre-contract enquiries which take time to prepare.  Some certificates are only required "where available". However, if the premises have been empty for some time, a landlord may find itself forced to take significant steps to get the premises ready for letting, particularly since the proposed MEES exemption for premises auctioned under the new powers has been dropped.  When the final bids for the premises are in, the landlord has just two working days to choose the successful bidder (assuming there is more than one bid to choose between).  In the absence of a decision, the local authority can choose to accept a bid from the bidder offering the highest annual rental value (provided it is reasonably practicable to enter a contract with them).

MHCLG decided against a requirement for a reserve price. It considered that a reserve may deter bids and that the auction would be an effective means by which to determine a fair market value, with bidders free to compete to secure a letting. Given vacant premises have been commonplace on the high street for some time, it seems likely that auctions will reduce current asking rents which will concern landlords and existing tenants of neighbouring premises who may find themselves paying over the odds. If those tenants demand rent reductions, then the result may be a general reduction in market rents or abandoned units further down the street.

If the key to securing market rents is effective marketing, then some may be concerned to find the new legislation light on requirements. No doubt mindful of limited resources, there is no obligation on local authorities to include professional photos or a floor plan or to post a 'to let' board at the premises.  Even prospective tenants would expect to be able to view the premises before submitting a bid, but no obligations are placed on local authorities to accommodate viewings. Prospective tenants will also have a reach a decision swiftly, given the required marketing period is just five weeks.

The local authority may specify a suitable high-street use in the marketing brochure to be included in the auction pack.  This does not necessarily need to be the current use. A new permitted development right will allow a change of use to a suitable high-street use for the duration of a tenancy granted following the rental auction where planning permission would otherwise be required.

Tenants of auctioned premises will not be permitted to sublet, amid concerns that, having secured a bargain at auction, they may seek to do so at a profit. Assignment will however be permitted, with landlord consent not to be unreasonably withheld. Abandoned department stores have become a common feature of the high street, nonetheless the government was not so bold as to allow subdivision.

The terms of the tenancy, set out in the regulations, require the tenant to pay a deposit of three months' rent or £1000 (whichever is higher). That may be little comfort to landlords accustomed to setting their own terms based on the covenant strength of the prospective tenant. Landlords could find themselves required to carry out works to and incur the cost of bringing premises up to the "minimum standard", being a condition which is safe, secure and with any significant occupational risks removed or managed (a standard required by and further defined in the regulations), only for the new business to fail.

During the consultation, 74% of local authorities said the process was too burdensome. In response, MHCLG has permitted local authorities to outsource the auction process to commercial property agents, although that will come at a cost.  It will not be the only cost.  The costs of marketing the properties and auction fees will be borne by the local authority, although the Act gives the local authority the ability to pass on the cost of searches, surveys, and solicitors' fees for lease preparation to the tenant (albeit it will suffer the upfront cost). Even so, it seems unlikely that the £1.5 million of government funding, allocated to High Street Rental Auctions will go very far.

At the showcase event, representatives of MHCLG suggested that powers might be used to encourage greater engagement between local authorities and local landlords. The idea that "pro-active landlords" might be exempt from the new regime has been dropped but it seems likely that powers will only be deployed where the local authority believes landlords are not taking sufficient steps to secure a letting.  A group of local authorities have been selected as "early adopters" so we will soon find out how proactive local authorities will be, when faced with the upfront cost and procedural burden of their new powers.  It is however clear that the MCHLG hopes to see many more lights "switched on" by next Christmas.