High Street Auctions | Update | Southampton

Here, we provide a follow-up on our previous article – High Street Rental Auctions Policy Consultation which looked at the points being covered by the High Street Rental Auctions Policy Consultation and the process that such rental auctions would follow.

Since our article, the previous UK Government (which we will refer to as “the Government” for ease) published its response. However, Regulations, which will set out much of the detail, are still awaited.

What the standard lease arrangements, terms and documentation should include

So far, the following terms have been confirmed:

• Standard of Repair:
  • Landlords must bring the selected property up to a “Minimum Standard” of physical state and condition – the premises must be in a safe, stable, and secure condition.
  • The tenant’s repairing covenant will be limited by a schedule of condition (taken after the landlord has brought the property up to a “Minimum Standard”).
• Assignment and subletting:
  • Assignments will be permitted subject to obtaining the landlord’s consent (not to be unreasonably withheld or delayed).
  • Subletting will not be permitted.
• Tenant’s fit-out works:
  • There is to be a 4-week rent-free period for the tenant’s fit-out works.
  • Internal, non-structural works are to be permitted, but the tenant must remove the works at the end of the term.
  • Any external or structural fit out works will require the landlord’s consent (not to be unreasonably withheld or delayed).
• Premises definition:
  • Leases of the whole of a building will be defined by a red edging with a general description.
  • Leases of part will be for an internal demise only, plus the shop front if appropriate, with rights for the tenant to attach into the retained parts for its fit-out.
• Deposit:
  • All leases will require a deposit of 3 months’ rent, or £1,000, whichever is greater.

How the costs of the High Street Rental Auction process should be spread

The local authority will be responsible for the costs of marketing the property and auction fees.

The tenant will be responsible for the costs of searches and surveys, plus the local authority’s solicitors’ fees for preparing the lease.

Whether the Minimum Energy Efficiency Standard (MEES) requirements should apply to properties subject to a High Street Rental Auction

There will be no exemption for MEES. This could still mean that substandard properties continue to remain empty, as landlords may wish to avoid costly works to bring them up to minimum energy efficiency levels.

The process of marketing the property and the auction

In relation to the marketing and auction elements, so far, we know that:

• the marketing period must be at least 5 weeks (with a recommended minimum of 6 weeks);
• the property must be listed on the local authority website and at least one major commercial property website, with photos and confirmation of the floor area;
• no reserve price will be set; and
• it will be a sealed-bid auction process outlined at Annex C of the Government consultation.

The terms of the proposed Permitted Development Right

It is expected that local authorities will determine and, when marketing and auctioning the property, set out the uses for which bids will be permitted. However, the permitted development right will not continue after expiry of the lease (as was previously proposed).

What next?

Given the recent general election resulting in a change of administration, no further steps have yet been taken in relation to this initiative, and Labour do not appear to have commented on their intention in relation to the high street auctions. And so intentions as to the implementation of required regulations to set the wheels fully in motion on this initiative are currently unclear.

Furthermore, the question we raised in our previous article remains; will local authorities have enough resources, even with the funding provided, to make use of its high street auction powers even once they come into force?

Conclusion

The nature and impact of high street auctions will only become clear once the required regulations are brought into force and the first high street auctions start to take place. We will therefore be watching this space very carefully and will look to bring you more updates as and when they arise.

UPDATE

Further to our above article, we now have confirmation that the high street rental auction process will come into force today, 2 December 2024.

However, there is likely to be a delay to its full implementation in practice whilst local authorities get to grips with their new powers under the new legislation, namely:

• Part 10 of the Levelling-up and Regeneration Act 2023
• Local Authorities (Rental Auctions) (England) and Town and Country Planning (General Permitted Development) (Amendment) Regulations 2024

So ultimately will High Street Rental Auctions help rejuvenate our high streets? This remains to be seen.

Landlords

Landlords may find that through these auctions, empty shops are occupied and this could help where there are service charge voids that they would otherwise be required to fill themselves.

However, the draft standard tenancy agreement that is contained in the legislation, which can be imposed on the parties where a landlord fails to engage, could have the opposite effect as it will not contain detailed service provisions which mesh exactly with the provisions of other existing leases of neighbouring units.

Landlords may also find themselves being required to carry out costly works to bring empty properties up to the minimum standard of repair and energy efficiency levels in return for a short-term tenancy at a low rent (as there is no minimum imposed by the legislation) for a tenant who they may not have ideally have wanted to deal with.

Local Authorities

The Government is reportedly setting aside £1million to support the auction processes. This isn’t a vast sum when looking at all of the high streets across the county. It is likely that many local authorities will still find that they do not have the required funds with which to prosecute a full purge of empty shops in their local high streets.

Local authorities may also find the risk of nobody bidding for a property, and thereby leaving the local authority with irrecoverable costs of the auction process, service of notices and the survey, to be too high where such costs are only recoverable from the successful bidder.

It appears to be the hope that the threat of the imposition of a High Street Rental Auction will press “disengaged landlords” to take positive steps to engage with their local communities to find suitable tenant and let properties, in order to avoid the auctions which could otherwise leave them having to carry out costly repairs, in return for short term tenancies with low rents and potentially undesirable tenants.

If you would like to discuss any of the points regarding high street auctions or have any other commercial property enquiries please contact either Claire Long or Ed Watson in the Commercial Property team.

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