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UK Real Estate Insights
Published in May 2022, the Levelling Up and Regeneration Bill 2022-2023 is currently being debated in the House of Commons and, if passed, will grant new powers to local authorities to conduct compulsory rental auctions of qualifying vacant commercial properties in nominated high streets and town centres in England.
The Bill underpins the UK Government’s levelling-up agenda and gives local authorities greater powers to help regenerate their local areas. The new auction provisions are aimed at re-invigorating high streets and town centres by enabling local authorities to fill vacant commercial properties through rental auctions.
Which properties will the auction powers apply to?
The auction powers will only apply to ‘qualifying properties’, being those situated in an area designated by the local authority as a ‘high street’ or ‘town centre’ (in accordance with requirements contained in the Bill) and which meet the following criteria:
Suitability for high-street use
The local authority must consider that the property is suitable for a ‘high-street use’ - this includes shops, offices, restaurants and public entertainment space. In assessing suitability, local authorities must have regard to any works that a landlord would be required, or a tenant may be likely, to carry out to the property prior to occupation.
The property must have been continuously vacant for more than one year or for 366 days in a two year period.
Local benefit condition
The local authority must consider that occupation of the property for a suitable high street use would be beneficial to the local economy, society or environment.
How will the auction procedure work?
The local authority must go through a two-stage process to notify a landlord of a qualifying property that it intends to proceed with a rental auction. The landlord has a right to appeal during the second notice period in certain circumstances, including where the landlord intends to occupy the property, to carry out substantial works or to redevelop the property. The government intends to deliver further regulations and guidance on how the auction procedure will work in practice – currently, it is unclear on what basis a bidder may be successful.
What terms will the new tenancy be granted on?
Once a bidder has been successful, the local authority will negotiate the letting terms through an agreement for lease (‘having regard’ to the landlord’s representations) before requiring the landlord to grant the lease on those terms. The local authority may require the landlord to carry out works before the start of the tenancy.
The Bill sets out certain terms the tenancy must include but further details are left to regulations. Required terms include:
The term must be for a minimum of one year and a maximum of five years.
Obligations requiring the tenant to repair and insure the property.
Circumstances in which the tenant may (or may not) dispose of its interest.
Provisions setting out when the landlord may forfeit or terminate the lease.
A requirement for the tenant to hand back the property with vacant possession at the end of the term.
The tenancy is automatically excluded from any security of tenure under the Landlord and Tenant Act 1954 and consent to the tenancy is deemed to have been granted by mortgagees and superior landlords.
The government is considering use of a model form of lease and guidance for a co-operative process between local authorities, landlords and tenants.
The Bill introduces wide-ranging new powers for local authorities to promote regeneration of high streets and town centres across England by targeting vacant commercial properties. The auction provisions should be of concern to all landlords who have been unable to let vacant units due to negative economic conditions and onerous business rates - particularly landlords of older, less energy efficient properties where local authorities could potentially impose costly improvement works on them as part of an auction letting process.