Levelling Up and Regeneration Bill – High Street Rental Auctions
Following the introduction of the Government’s Levelling Up and Regeneration Bill to the House of Commons on 11 May 2022, we follow up on our article Levelling Up – Government to play matchmaker on the high street? with an overview of the proposed legislation.
In brief, the Levelling Up and Regeneration Bill (the “Bill”) establishes a statutory notice procedure to be followed by local authorities before a rental auction can be carried out and the landlord required to grant a short-term tenancy to the “successful bidder”.
The local authority must first establish if the Vacancy Condition and the Local Benefit Condition are met in relation to a Qualifying High-Street Premises.
Qualifying High-Street Premises – the premises must be located on a designated high-street or town centre and the local authority must consider the premises to be suitable for a high-street use. The local authority has the right to designate high-streets and town centres in accordance with the criteria set out in the Bill. A list of high-street uses is set out in the Bill and includes shops, offices, restaurants, bars and cafes.
Vacancy Condition – this is satisfied if:
- the premises are unoccupied on a particular day; and
- either (i) the premises were unoccupied for the whole of one year ending with the previous day or (ii) during the two years ending with the previous day the premises were unoccupied for at least 366 days.
Occupation involves a regular presence of people at the premises and not just a state of affairs. This is an anti-avoidance measure.
Local Benefit Condition – this is satisfied where the local authority considers the occupation of the premises for a suitable high-street use would be beneficial to the local economy, society or environment.
Statutory Notice Procedure
If the conditions are met, the local authority may serve an Initial Letting Notice, which will expire after 10 weeks.
Whilst the Initial Letting Notice is in force, the landlord may not grant or agree to grant leases or licences of the premises without the local authority’s written consent. Consent must be granted if the conditions set out in the Bill are met, which includes that the proposed tenancy would be for a term of at least one year (a right to terminate within one year shall not satisfy this condition).
Eight weeks after the Initial Letting Notice was served, the local authority may serve a Final Letting Notice, which will expire after a further 14 weeks. Whilst in force, the landlord may not deal with or carry out any works (save for urgent works) to the premises without the written consent of the local authority.
The landlord is permitted to serve a counter-notice and appeal the Final letting Notice on grounds that include the landlord intends to carry out substantial works and requires possession of the premises in order to carry out those works.
Where a Final Letting Notice is in force, the local authority may arrange a rental auction to find a person who is willing to take a tenancy of the premises and to ascertain the consideration they would be willing to pay. Further regulations are awaited from the Secretary of State regarding the rental auction process and how a “successful bidder” will be identified.
Following a successful rental auction, the local authority may enter into an agreement for lease of the premises with the “successful bidder”. The local authority will enter into the agreement for lease in its own name, but the agreement will bind the landlord, who is then obliged to grant the lease. If it does not do so, the local authority may grant the lease and that lease will be binding on the landlord. The lease will be granted with the deemed consent of any superior lessor and mortgagee.
The Bill sets out the types of provisions that must be included in the legal documents. Further regulations are to be issued by the Secretary of State to establish in more detail the terms of those documents, and regard must be had to the terms on which agreements for lease and leases of short-term tenancies are typically entered into on a commercial basis. The leases will not benefit from security of tenure.
We will be closely watching the passage of the Levelling Up and Regeneration Bill through the House of Commons and House of Lords and are interested to see what amendments will be proposed and agreed. We also await the regulations from the Secretary of State, which will really impact the workability of this policy from the perspective of a landlord.
If passed in the current form, the Bill would be remarkable in that not only would it allow a local authority to take action to bind a landowner without their consent, but it would also potentially prevent others with interests in the property (superior landlords and mortgagees) from exercising their rights.
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For any other legal questions related to UK real estate, please get in touch with your usual Mayer Brown contact or one of the blog editors.