The Levelling-Up and Regeneration Bill (Bill) has just been laid before Parliament. Among its many proposals are draft provisions to empower local authorities in England to hold rental auctions and contract to let vacant high street and town centre premises without requiring the prior consent of the owner, superior landlords or mortgagees.

Overview

The process outlined in the Bill can be broken down into four stages. "Landlord" in this context is the person entitled to possession of the premises and who can grant a tenancy of the premises for one year or more.

1. Designation: Local authorities will be given the power to designate:

1. a street as a high street; and
2. an area as a town centre,

if certain criteria are met. Premises within such designations will be qualifying high street premises if the local authority considers that they are suitable for high street use. High street use is not confined to retail. Instead, it is given a very wide definition and includes (but is not limited to) uses such as offices, restaurants/cafés/bars, public entertainment and manufacturing. Warehouses are, however, specifically excluded.

2. Initial notice: A local authority will be empowered to serve an initial notice on a landlord in relation to qualifying high street premises if both of the following conditions are met:

1. vacancy condition: this requires the premises to be vacant and to have been vacant for the whole of the immediately preceding year or for 366 days in the immediately preceding two years. Interestingly, a state of affairs will not amount to occupation unless it involves the regular presence of people on the premises; and
2. local benefit condition: this requires the local authority to be satisfied that occupation of the premises for a suitable high street use would be beneficial to the local economy, society or environment. Again, another wide definition.

The initial notice period is 10 weeks. During this time, the landlord will be restricted from letting the premises (including granting licences to occupy or entering into arrangements entitling others to possess or occupy the premises) without the consent of the local authority. There is an exception where the landlord is bound by an obligation to let which pre-dates the initial notice. In addition, the local authority is required to grant consent to a letting or licence which fulfils certain criteria. Hence, the landlord is given a window of opportunity to let the premises but only if such letting (or licence) meets certain conditions – this opportunity is not replicated under the restrictions on letting during the final notice period.

3. Final notice: This can be served by the local authority if:

1. there is an initial notice in force in relation to the premises and eight weeks have elapsed since it took effect; and
2. the premises have not been let etc. in the interim.

However, the final notice must be served in time for it to take effect before the initial notice period expires.

Landlords will have 14 days from the date of the final notice to serve a counter-notice stating that they intend to appeal and specifying upon which of the seven permissible grounds for appeal they will be relying. If the final notice is not withdrawn, the landlord will have 14 days to launch the appeal to the County Court on the grounds specified in the counter-notice.

During the final notice period, the landlord will not only be subject to restrictions on letting the premises (including granting licences to occupy or entering into arrangements entitling others to possess or occupy the premises) without the local authority's consent, but will also be subject to restrictions on works without that consent.

The final notice period is 14 weeks. During that time, the local authority may hold a rental auction to find persons who would be willing to take a tenancy of the premises and ascertain the consideration they would be willing to pay. Prior to the auction, the local authority must specify the suitable high street use for the premises (any subsequently imposed letting will be for this use only). The details of the rental auction process are to be set out in secondary legislation. 

4. Power to contract to let: The local authority's power to contract to let (and thereby bind the landlord to the letting) arises where the following conditions are met:

1. a final notice is in force and at least 42 days have elapsed since it took effect;
2. a rental auction has been carried out; and
3. the premises have not been let etc. in the interim.

The purpose of the contract is to allow for works to be carried out to the premises before the tenancy is granted.

If the landlord subsequently defaults on the obligation to let, the local authority can grant the tenancy on the landlord's behalf.

While there are some indications as to the terms on which a local authority may let (e.g. it must be for the high street use designated prior to the rental auction; it must be for a term of at least one year but no more than five years; it will be outside security of tenure; and it must satisfy certain criteria laid out in Schedule 16 of the Bill), there is currently not enough detail to reassure landlords that they will not be getting a rough deal. In particular, beyond the obligation that if the successful bidder at the rental auction has indicated the amount of premium or rent they are willing to pay, less cannot be agreed without the landlord's consent, there are no provisions prescribing a minimum rent.

While the local authority must have regard to representations made by landlords as to the terms of the tenancy, that does not mean that the local authority is bound by those representations. Instead, there is a catch-all reassurance that, in making regulations prescribing further details as to the terms of imposed tenancies, the Secretary of State must have regard to the terms on which short-term tenancies are granted on a commercial basis.

The contract to let and subsequent tenancy will be deemed to have been entered into with the express consent of any superior landlords and/or mortgagees.

Thoughts

While there are clear economic, social and environmental reasons for us all to want to breathe new life into our high streets, the reasons for the proliferation of vacant space are complex. While there is no guarantee that these provisions, if carried through, will provide the answer, they will certainly incentivise landlords to make extra effort to let their space rather than risk losing control of that process.