Simon Wilson is a consultant Commercial Property Lawyer at Wollens and he highlights this warning to commercial property landlords.
DRACONIAN NEW POWERS FOR LOCAL AUTHORITIES TO RENT OUT VACANT HIGH STREET PREMISES
Part of the recent Levelling-up and Regeneration Act 2023 (the Act) empowers Councils to hold rental auctions and then let out vacant town centre premises, without the consent of the owners, their Superior Landlords, or their mortgage lenders.
Further detailed legislation is awaited but the 2013 Consultation Paper, 2023 consultation on high street rental auctions, indicates that the legislation is required to counter the increasing number of vacant high street shops, impacting on a loss of footfall in town centres and loss of business rates.
Whilst the consultation indicated that the legislation is not intended to apply to Landlords actively seeking to find new occupiers, but the risk is there for all Landlords.
There are 4 stages in the process:
Stage 1: Designation
Councils will have power to designate which high streets will be qualifying high street areas and there will be a public list of these, to be registered as local land charges.
This is not just retail areas but can include all Use Class E businesses and services such as offices, restaurants, cafes, bars and even manufacturing premises.
Stage 2: Initial Letting Notice (ILN)
Councils can issue a ILN if two conditions are met:-
- Vacancy Condition: If a property has been substantially vacant for a year or more (this can still apply even where there has been casual or short term occupation of the premises); and
- Local Benefit Condition: Where the Council is satisfied that occupation is for a suitable high street use beneficial to “the local economy, society or the environment”.
The effect of a ILN means that for ten weeks the Landlord cannot let the premises without the written consent of the Council (unless there was a previously contracted letting which pre-dates the ILN).
Stage 3: Final Letting Notice (FLN) and Rental Auction can be served if:
(a) If after 8 weeks the ILN is still in force; and
(b) If the premises have not been let or if any letting is not inconsistent with the power to hold a rental auction.
Landlords only have 14 days from service of an FLN to serve a counter-notice of their intention to appeal (there are 7 permitted grounds for appeal, e.g. if there is a clear intention to carry out substantial construction, demolition, or re-construction of the premises). However, there are tight rules for an appeal which could become an expensive and complicated process.
Details of the rental auction process are awaited but are expected to provide that: –
- There will be no reserve price/rent;
- Council can outsource the rental auction process; and
- Auction will be by sealed bids with the Landlord having final choice of the successful bidder.
Stage 4: Council has power to contract to let the premises
It is anticipated that lettings documents will adopt standard contracts and Leases which may include:-
- Allowing Tenants to enter the property to carry out pre-tenancy work; and/or
- Require the Landlords to carry out the works themselves or, in default, reimburse the Tenant for doing those works.
The Consultation suggests that Landlords will also incur the cost of bringing the premises to a minimum standard to make the premises safe, stable, and secure and up to a minimum EPC rating of an E.
Details of the Standard Letting Terms are awaited but will be compatible with high street use, for a term between 1 to 5 years and outside the 1954 Act.
Whilst a Landlord can make representations to the Council regarding the Lease terms, the Council is not bound to accept them.
The Act provides that any letting is deemed to be with the “deemed Consent” of any lenders or superior landlords and the Act seems to have wide enforcement powers. We will update this guidance note once the secondary legislation, to enforce the Act, has been published.
However, we recommend that any landlord with any high street rental premises must now consider the potential impact of the Act particularly, as the vacancy condition clock is already ticking!
How we can help
Our team in both of our Commercial Property and our Dispute Resolution departments in each of our offices in South Devon, Exeter and North Devon will be pleased to advise any clients who have any concerns about the effects of the Act or the impact on letting-out any High Street premises.