It has been a full year since the transformative Levelling-up and Regeneration Act (LURA) 2023 received Royal Assent.
The LURA encompasses a wide range of planning provisions that have significantly impacted commercial property landlords, some of these impacts may not be positive.
Part 10 of LURA is intended to reduce the number of empty and boarded-up shops, which have been growing at an alarming rate, falling victim to the freefall of the high street, where one in every seven shops lies empty – 80% of which have been empty for more than two years.
When Part 10 comes into effect, local authorities will have discretionary powers to fill properties that have been bereft of shoppers for at least a year, through a High Street Rental Auction.
When implementing the scheme, the local authority must consider the following steps:
Step 1: Designation
The High Street Rental Auction process can be initiated on qualifying premises. The premises must have been vacant for at least twelve months (or more than 366 days in the last two years) and be;
- situated on a designated high street or in a designated town centre
- suitable for high street use, including shops, offices, food or drink establishments, public entertainment or meeting places and light industrial units.
Step 2: Initial Letting Notice
The local authority will serve a landlord with an initial letting notice for any qualifying property. During the initial notice period of up to 10 weeks, the landlord is prevented from letting out a property without local authority consent. Any lease issued by the landlord without local authority consent will be void.
The local authority must consent to a letting which is proposed by a landlord if;
- no more than 8 weeks have passed since the notice was received
- the tenant will take on a lease or licence for a minimum of one year, resulting in occupation of the property as a high street premises.
If, at the end of the 10-week initial notice period, no such letting has been secured, the local authority can proceed to the next step.
Step 3: Final Letting Notice
A final letting notice is valid for a period of 14 weeks. During this time, the landlord is restricted from carrying out any works to the property except on an emergency basis.
The local authority has no obligation to consent to a new letting proposed by a landlord, even if it meets the qualifying criteria of the initial letting notice.
In rather limited circumstances, the landlord has the right to serve a counter notice to the local authority. These circumstances include:
- occupy the property for their own business
- occupy the property for their own residential home
- carry out substantial construction works.
After 14 weeks, if no letting has been approved by the local authority, the local authority can proceed to a rental auction.
Step 4: Rental Auction
Local authorities are empowered to contract as if they were the landlord, and there will be deemed consent from any superior landlords and mortgagees.
The local authority will proceed to this stage with no powers of compensation to the landlord, except for damages incurred while carrying out surveys of the property.
Additionally, the landlord may be required under the terms of the High Street Auction lease, to carry out certain works to the property at their own expense prior to the new letting.
The local authority will enter into a lease with the successful bidder, and this will take effect and bind the landlord. Tenancies granted under Part 10 will be for a minimum of one year and a maximum of five years, with no need to obtain a change of use for planning purposes. Tenants will not have security of tenure under the Landlord and Tenant Act 1954.
The annual rent agreed by the local authority could be far below the market rate and could remain this way for the entire duration of the tenancy. We await further updates to determine if any other terms of the tenancy are required.
The North East has been excluded from the £2 million Government-funded pilot program; however, although further guidance is needed, the first auctions in the 10 pilot areas are planned to take place this month, with more areas expected to be added to the pilot if it proves successful.
If the risk of an enforced auction is unappealing, Commercial landlords may be wise to use this time to scrutinise their portfolio and consider letting out or selling any properties in vacant possession located on the high street or in town centres.
Short-term lettings and repurposing commercial premises where a long-term tenant cannot be secured to residential dwellings could also be considered to mitigate the potential impact of the Act.
It should be noted that local authorities, in many areas, are already struggling to manage their burgeoning admin work and the High Street Rental Auction is likely to increase this workload. As such, it is expected, once enacted, that the lack of capacity in most local authorities will cause landlords to encounter significant delays when awaiting local authority consent to re-let empty properties, meaning that initially, the scheme could feel counterproductive.
While everyone would like to see a regenerated high street, with dilapidated town centres and depressed communities reinvigorated and encouraged to flourish, not least to spur economic growth, the lack of financial restitution and control over how the premises are to be used and what rent may be expected could be a step too far. This could potentially grant local authorities too much scope for inconsistent, unfair and ill-considered decision-making, ultimately harming the very spaces that landlords have been fighting to protect. Ultimately, time will tell, although at what cost?
No date has yet been confirmed for when the High Street Rental Auction will come into force, and further guidance is expected by early 2025.
For further information regarding the new regulations or if you have an empty property you wish to lease or sell, please contact Diane Hall, Associate Solicitor, at dch@swinburnemaddison.co.uk or 0191 384 2441.
