Local authorities will be given rights to let vacant high street premises under new powers contained in the Levelling Up and Regeneration Bill. Michael Callaghan looks at the detail of the proposals.
The government wants to regenerate local high streets as part of its levelling up agenda. A key element of its proposals is to give local authorities the right to let vacant premises on their high streets following a rental auction process. A local authority will be able to designate a high street or a town centre as an area to which the rental auction provisions will apply if it considers that the street or area is important to the local economy because of a concentration of high-street uses. A designation will be registered as a local land charge.
Vacant premises in a designated area may be subject to the rental auction process if 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. Premises are considered to be vacant if they have been unoccupied for a continuous period of one year or for more than 366 days in the previous two years.
To begin the rental auction process, the local authority must serve an initial letting notice on the owner of the premises. This notice will remain effective for 10 weeks. If the owner of the premises has not let those premises within that period, the local authority can serve a final letting notice eight weeks after serving the initial letting notice. The final notice will continue effective for a period of 14 weeks. Where a final letting notice has been served and remains in effect, the local authority may arrange a rental auction.
Restrictions on the owner of the premises letting the premises
Once an initial letting notice has been served, the owner of the premises will require the consent of the local authority before granting anyone the right to occupy and use the premises or entering into an agreement to do so. This restriction will continue following the service of a final letting notice.
However, if there is an existing agreement for the letting of the premises, the service of an initial or final letting notice will not prevent the landlord completing that agreement. If a right to occupy and use the premises is granted without the consent of the local authority, it is deemed to be void.
The local authority will be required to give consent to a right to occupy the premises if it is satisfied that the occupation will begin within eight weeks of the date on which the initial letting notice took effect, the right will continue for at least one year and would be likely to lead to the occupation of the premises for activity that involves the regular presence of people at the premises. A right to occupy terminable by either party in the first year (unless due to default) will not meet the requirements for consent. Note, however, that the requirement to give consent in these circumstances applies only where the initial letting notice has been served. The local authority is not under a similar requirement to give consent if it has served a final letting notice.
Restrictions on the owner of the premises carrying out works
Once a final letting notice has been served, the owner of the premises will not be able to carry out works to them (including the alteration or removal of fixtures) without the consent of the local authority. Consent will not be required for works that are urgently necessary for repair or preservation of the premises, or necessary to fulfil an obligation of the owner of the premises, other than one voluntarily assumed after service of the initial letting notice. A breach of this restriction can result in a fine on summary conviction of up to £2,500.
Counter-notice and appeal
The owner of premises served with a final letting notice has 14 days following receipt to serve a counter-notice stating that, if the final letting notice is not withdrawn, they intend to appeal against it. The counter-notice must state the ground of the appeal. The permitted grounds are specified in the Bill. They are (broadly) that the relevant conditions for exercising the rental auction process have not been satisfied, that the owner intends to carry out substantial works to the premises or that the owner intends to occupy the premises for their own business or residential purposes. If the final letting notice is not withdrawn, the owner of the premises can make an appeal to the county court within 28 days of serving the counter-notice. The county court must either revoke or confirm the final letting notice.
Rental auction process
Following the service of a final letting notice, the local authority may arrange for a rental auction to be carried out to find persons who would be willing to take a tenancy of the premises and to agree the consideration that they would be willing to pay. Regulations will make provision about the process of rental auctions.
Following a successful rental auction, the local authority may enter into a contract with the successful bidder for the grant of a short-term tenancy. A contract entered into by the local authority is treated as if it were entered into by the owner of the premises. The contract may include provisions allowing the tenant to enter the premises to carry out fitting-out works and require the owner of the premises to carry out works, whether in or outside the premises, before the term of the agreed tenancy begins.
Grant of the short-term tenancy
The tenancy to be granted must be for a term of between one and five years and include a restriction on use to the relevant high street use notified by the local authority in the rental auction process. A tenancy granted under this process will automatically be outside the security of tenure provisions in the Landlord and Tenant Act 1954. The Bill sets out (in general details) the other terms that the short-term tenancy may include in respect of the repair and maintenance of the premises and alterations to them, insurance, utility costs, assignment and underlettings, the giving of a rent deposit, rights of re-entry and returning the premises to the property owner at the end of the term. Regulations will provide more details of the terms to be included in the short-term tenancy. Whilst the local authority must have regard to the landlord’s representations on the terms of the tenancy, there are no provisions allowing the landlord to challenge the terms agreed by the local authority.
If the landlord does not grant the tenancy under the tenancy agreement entered into by the local authority, the local authority can grant the tenancy and the tenancy will be treated as if it had been granted by the landlord.
Superior landlords and lenders with security over the premises will be deemed to have granted consent to the contract and any tenancy entered into pursuant to the rental auction process.
Although local authorities are given wide powers to let vacant premises, whether these powers will lead to a regeneration of high streets is unclear.
A prospective tenant will only want to occupy premises if they can operate viable businesses or community services from them. The rent payable and other lease terms are only a small part of viability. Local business rates are a big consideration and the rental auction provisions do not address these. In addition, if surrounding premises are also vacant a prospective tenant may be cautious about whether there will be sufficient footfall to encourage people to visit the premises.
Michael Callaghan is a professional support lawyer at Shoosmiths.