The introduction of the Levelling Up and Regeneration Act 2023 sets out to bring significant changes for commercial landlords, especially those with properties on high streets.
The relevant parts of the legislation are not yet in force, but it is considering granting local authorities the right to conduct rental auctions for vacant high-street properties; posing potential challenges and opportunities for landlords.
Understanding the legislation for commercial landlords
The Act would empower local authorities to hold rental auctions for empty high street properties if landlords fail to secure tenants within 12 months, in a 24-month period. Although the specific regulations are yet to be enforced, commercial landlords of urban retail, office, or hospitality premises should consult with a solicitor to evaluate the potential impact on their properties.
Why high street rental auctions?
Empty shop units and struggling high streets are common issues across the UK. According to Glide.co.uk, there are approximately 172,000 vacant commercial properties on the high street. These empty properties affect footfall, appearance, and economic activity due to falling victim to vandalism, graffiti, and general anti-social behaviour.
The government’s latest initiative aims to address this by allowing local authorities to step in and lease vacant properties to the highest bidders, for up to five years. This intervention could either aid landlords by filling vacancies or be seen as an overreach into property management.
Criteria for rental auctions
Local authorities must designate areas as ‘high streets’ or ‘town centres’ before invoking rental auction powers. These areas typically encompass:
- Shops and offices
- Service providers (beauty salons, advice bureaus)
- Restaurants, bars, pubs, cafés, and takeaways
- Entertainment or recreational venues
- Communal halls or meeting places
Eligible properties
A property must be vacant for the entire preceding 12 months or at least 366 days over the past 24 months to qualify for rental auction. This includes periods before the legislation is in force, meaning current vacancies may be subject to future auctions.
Considerations for landlords
Funding refurbishments and EPC ratings: Landlords may be obligated to fund refurbishments or increase a property’s Energy Performance Certificate (EPC) rating to make it lettable.
Refurbishment costs may fall on landlords to ensure properties are safe, stable, and secure for tenants. The obligation to meet minimum Energy Efficiency Standards (MEES) remains, and compliance will be necessary for properties subject to rental auctions. How this aligns with the MEES regulation spending cap is yet to be determined.
Tenant fit-out and landlord consent: Tenants will be allowed to fit out properties without landlord consent, but external or structural works will require landlord consent, which cannot be unreasonably withheld or delayed. Maintaining control over the property’s condition can be a useful negotiating tool for landlords.
Loss of control over tenant selection and lease terms: How much influence landlords will retain under the new regulations remains unclear. The policy presumes that empty properties result from landlords not proactively seeking tenants or being inflexible with leasing terms. However, most commercial landlords have valid reasons for vacancies.
We caught up Amy Durkin of Vickery Holman, the largest team of commercial property consultants in the South West for her view. Amy comments:
“There is no doubt the retail market in many areas has slumped in recent years and vacancies are high. It is often the larger properties which are harder to let, too large for many small businesses but not in the locations wanted by larger names. When we look at negotiating rent reviews and lease renewals for clients, we analyse rental transactions of other properties and make comparisons between these and our property, to assess what rental level the property should achieve. Some of these properties have been vacant for many months or even years, so although a deal for new terms has eventually been done, there has been a long wait with no income for the landlord.
Standard leases are fairly landlord friendly, with tenants usually responsible for repairs and decoration, all bills and utilities and in most cases, reimbursing the landlord for building insurance. The occupations that might arise from these rental auctions may well be more flexible, subject to shorter terms or even on a licence rather than a lease. This may mean more responsibility for the property being passed to the landlord. Usually if a tenant takes an internal repairing and insuring lease, they usually expect to pay a higher rent for lessened responsibilities. It will be interesting therefore to see whether rents proposed by bidding parties are for the basis of the landlord having a higher responsibility for the property, or whether more traditional terms will be favoured.”
Getting prepared
With the full details still unclear, landlords should stay informed and seek legal advice. Expert commercial property lawyers can provide guidance on the current situation and offer practical advice as the regulations develop.
How we can assist
Our team of commercial property experts is ready to help you manage these changes. We can provide detailed explanations, updates, and strategic advice to ensure you are well-prepared.
For more information, please contact the team directly by emailing property@rubric.law or calling 0117 435 4350.
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