High Street Rental Auctions Explained

Since 2 December 2024, local authorities have been granted a new permissive power to hold High Street Rental Auctions (HSRAs) to arrange the lettings of “qualifying high street premises” with the aim of revitalising vacant commercial properties in town centres and high streets across England.

WHAT PREMISES COULD BE AFFECTED?

The new regime will affect premises which are:

• considered as suitable for “high street use” by the local authority;
• located in a designated high street or town centre within that local authority’s area;
• currently vacant and vacant for either the whole of the previous year or for at least 366 days in the previous two years (which includes periods of vacancy prior to when the new regime came into force on 2 December 2024); and
• considered by the local authority as beneficial to the local economy when occupied for “high street use”, including, for example, shops, offices and restaurants, but excluding warehouses.

WHAT DOES THE AUCTION PROCESS INVOLVE?

The legislation and non-statutory Government guidance sets out the timetable for the HSRA process once qualifying high street premises are identified, which is expected to take 22-24 weeks from initiation to completion.

Initial and Final Notices

• The local authority must serve an initial notice to the landlord, which gives the landlord eight weeks to let the premises themselves. During this period, the landlord's ability to deal with the property is restricted. However, where the landlord is able to let the premises, the auction process goes no further.
• If no agreement is reached within eight weeks, the local authority can issue a final notice, which further limits the landlord's control over the property and allows the local authority to proceed with the auction. 
• A landlord can serve a counter-notice to try to stop the process within fourteen days of service of the local authority’s final notice; however, if the landlord’s appeal pursuant to the counter-notice is unsuccessful the local authority has the power to proceed with the auction process.

Auction Process:

• The auction process involves preparing the auction pack, lease documentation, and marketing the property. The local authority is responsible for this; however, the landlord is obliged to supply accurate replies to enquiries and other relevant documentation, such as EPCs and electrical/gas safety certificates.
• At the end of the six-week marketing period, all the bids received by the local authority will be served to the landlord, to choose from. Where a choice is not made, the local authority has the power to enter the agreement for lease and the lease with the highest bidder on the landlord’s behalf. The local authority does not require the consent of the landowner or freehold owner to do so.

The Lease Documentation:

Where the premises are let through the HSRA process, the form of agreement for lease and lease are set out in the relevant regulations, which limits the landlord’s ability to negotiate and/or include any bespoke provisions. Set provisions include:

• Leases will have a minimum term of 1 year and a maximum term of 5 years.
• Tenants will have a 4-week rent-free period.
• The lease will be excluded from the security of tenure provisions of the Landlord and Tenant Act 1954, which means that the tenant will not have the statutory right to renew the lease at the end of the term.

WHO IS RESPONSIBLE FOR THE COSTS OF THE NEW REGIME?

The local authority is responsible for the marketing and auction fees; however, it can require the successful prospective tenant bidder to cover the cost of the surveys, searches, and legal costs incurred when preparing the auction pack, agreement for lease, and lease.

Controversially, when a survey is carried out by the local authority which indicates that work must be done to the premises to bring it up to the minimum repair and condition standard prescribed in Schedule 2 of the relevant regulations, the landlord will have to bear the cost of these works.

COMMENT

There is a clear incentive for the Labour Government to introduce this new regime, particularly due to the impact of the COVID-19 pandemic, which has culminated in one in seven high street shops being vacant nationwide, as reported by the Local Data Company. Unfortunately, this legislation has proved contentious amongst landlords given its subsequent impingement on their ability to rent their premises as they wish.

Although the Government has pledged one million pounds in funding, it is unclear whether local authorities will be able to exercise these powers in practice, due to the time and resources required. Moreover, the regime’s success is likely dependent on whether suitable tenants will bid for these premises, particularly where there have been long-term vacancies due to high business rates and low customer traffic. Nevertheless, it remains to be seen what effect these new powers will have.   

Please note that the contents of this blog are intended as general information only, and do not constitute legal advice. If you are a landlord or a tenant of a qualifying premises looking for specific legal advice on the new HSRA rules, please contact one of our team.