gordons llp levelling up and regeneration bill

Levelling Up and Regeneration Bill 2022 – The Government’s Commitment to Address Vacant High Streets

Friday 8th July 2022

Following the Queen’s Speech last month, the Government published the Levelling Up and Regeneration Bill 2022.

The Levelling Up and Regeneration Bill has not yet been passed in Parliament but a key element of it is aimed at granting local authorities the power to force landlords to let empty premises on town centre high streets. This has sparked a storm of debate.

The Government intends to unlock new powers for local authorities to bring vacant premises back into use via the compulsory ‘high street rental auctions’ procedure. Here, we look at how the process is intended to work and what impact it could have on high street landlords.

Which properties will be affected by the Bill?

The proposed changes will only affect properties on high streets which are designated by a local authority to be “important for the local economy because of a concentration of high street uses of premises on the street.”  Such uses are widely defined and include shops, offices, restaurants, bars and recreational uses, meeting halls and industrial/manufacturing uses. Warehouse use is excluded.

To qualify for the rental auction process, the premises must also have been left unoccupied for the whole of the previous year, or at least 366 days over the last two years. It must also satisfy the “local benefit condition”. The Bill states that the local benefit condition will be satisfied if “the local authority considers that the occupation of the premises for a suitable high-street use would be beneficial to the local economy, society or environment.”

What is the compulsory rental auction process?

  • The process requires a local authority to serve notice which gives a period of eight weeks for the landlord to let the premises. Once this notice has been served the landlord cannot let its premises without the consent of the local authority.
  • If the landlord is able to let the premises within this period for a term of at least one year (with no right to terminate during the first year) which results in the premises being occupied by “a regular presence of people”, then the local authority must give its consent to the letting. It is unclear what constitutes a “regular presence of people.”
  • If the landlord is not able to let the premises within this period, then the local authority is entitled to run a rental auction to try and find a tenant.
  • It is possible for landlords to appeal under specified grounds: that the relevant procedure for the rental auction process has not been followed; or that the landlord intends to carry out substantial works or to occupy for its own business or for residential purposes. There is then a further right of appeal to the County Court.
  • The local authority will have the power to decide who the successful bidder is and to grant the tenancy to them at an agreed rent for a “suitable high street use.” The local authority will also determine the other terms of the tenancy. They will consider any representations of the landlord, but there are no provisions allowing the landlord to challenge the terms of the tenancy (which may include requiring the landlord to carry out works or allowing a tenant to carry out fitting-out works).
  • After the auction, the landlord must enter into the lease and, if it does not, then the local authority can do so on the landlord’s behalf. The Bill states that the lease will be deemed to be granted with the express consent of any mortgagee or superior landlord. It remains to be seen how this will impact lending requirements.

What does this mean for landlords?

Not surprisingly, the consensus within the property industry is that these proposed new measures are highly invasive and give wide-ranging powers over the property in which a local authority has no legal interest. The proposals could require a landlord to enter into a lease that it is opposed to or require it to incur significant costs on works or legal fees.

Forcing someone to let its property to an occupier it has not chosen may result in a poor landlord and tenant relationship, including a lack of estate management (particularly if the landlord does not have the financial resources to carry out works or maintenance). Potentially, it could lead to an inappropriate tenant mix.

The RICS, whilst sharing the Government’s desire to see empty commercial property brought back into use, states that it has concerns that the proposals may be ‘too blunt a tool’ and fail to address the many complex reasons why shops are unoccupied, including lack of demand, business rates,  planning policy, shifting consumer habits, the rise of online retail and the impact of the pandemic.

Whilst no one wants to see the further decline of the high street, it is debatable whether this invasive process is the solution. The issue may be more about lack of tenant demand, or perhaps planning policy regarding city centre use and parking restrictions designed to encourage shoppers away from out-of-town retail.  It is also debatable whether already stretched local authorities will have the resources to utilise this process and find a suitable tenant.

The Levelling Up and Regeneration Bill was debated at the second reading on 8 June 2022. It has now been sent to a Public Bill Committee, which will scrutinise the Bill. It is expected to report to the House of Commons by 20 September 2022.

If you have any queries about The Bill or any other property queries, please contact a member of our commercial property team.