Levelling-up: Local authorities granted powers to let empty high-street premises

Levelling-up: Local authorities granted powers to let empty high-street premises

The much-anticipated Levelling-up and Regeneration Act 2023 received Royal Assent on 26 October 2023, though it is not yet in force. The Act seeks to address a range of issues in the real estate sector and was introduced to (amongst other things) bring high streets back to life, or in the words of Michael Gove, the Levelling Up Secretary “deliver revitalised high streets and town centres”.

A notable and somewhat controversial part of the Act grants powers for local authorities to require landlords to let their vacant high street properties. Under the Act, if landlords leave properties vacant, local authorities can step in and conduct a rental auction and agree a short-term letting on the landlord’s behalf, without the consent of any other party with an interest in the premises (such as a superior landlord or a lender).

This right applies where:

  • the property is in an area designated by the local authority as a high street or a town centre;
  • the local authority believes that it would be suitable for “high-street use” (defined fairly broadly
    to include most commercial uses such as shops, offices, restaurants, pubs and entertainment venues);
  • the property is unoccupied and has been for a year or 366 days over the preceding two years; and
  • the local authority deems that occupation would be beneficial for the local economy, society or environment.

Where the right applies, the local authority can serve a notice prohibiting the landlord from agreeing or granting any leases or licences without their consent (which must be given where certain criteria are met). The point of this notice is to act as a form of warning to the landlord to let the property to a tenant that the local authority believes would be beneficial for the area.

This then sets in motion a chain of deadlines. After eight weeks, if the property has not been let, the local authority can serve a further notice on the landlord (by way of further warning). This notice goes further than the first and additionally prohibits the landlord from carrying out any works to the premises without the local authority’s consent, so as to prevent frustration of a compulsory letting process. A breach of this prohibition is a criminal offence. A landlord can appeal this second notice on certain specified grounds.

If the property is still unoccupied 14 weeks after the local authority serves the second notice, it can arrange a rental auction. The local authority (on behalf of the landlord) will then enter into an
agreement to let with the winning bidder. Quite how the auction process itself will work remains to be seen as this will be detailed in regulations to be made in due course.

As to the agreement itself, certain mandatory terms are set out in the Act: the term must be between 1 and 5 years and contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954. Other terms will be imposed in regulations in due course. The pre-legislative consultation gives some clues as to what these may be. For example, the “High street rental auctions” consultation from earlier this year suggested that no guarantor would be required but a rent deposit may be (3 months’ rent or £1,000, if more). However, there is currently no guidance as to how local authorities will assess and agree rent levels – and where these are agreed at below the market value, it remains to be seen how this will impact rental values in the surrounding area.

Although the Act requires local authorities to “have regard” to any representations made by the
landlord, the landlord has very little involvement or say in the process at all.

This part of the Act is not yet in force and much remains to be clarified in terms of process and terms. It will be interesting to see how the current important gaps in the detail are dealt with as draft regulations are published. It is hoped that, combined with the announcement of the extension of the Retail, Hospitality and Leisure (RHL) scheme next year, the Act creates the tangible and positive changes to our high streets that it is intended to achieve. It is difficult to envisage at present the extent to which these powers will be exercised in light of the extensive administrative burden this will place on already stretched local authorities. Ultimately, its mere existence and the threat of its use may be enough to encourage landlords to let vacant units lest they be lumbered with unwanted tenants by local council officers.

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