The government has launched a consultation in relation to its proposals for high-street rental auctions in England.
The proposals are to give local authorities the power to auction the right to rent commercial properties which have been vacant for more than 12 months over a 24-month period.
The motive behind the proposals is to prevent commercial units on the high street from being vacant for long periods.
The consultation closes on 23 June 2023.
The number of vacant commercial properties in England has continued to rise, with high streets still suffering the impacts of Covid, which has been compounded by the recent economic downturn.
Figures from 2019 suggested that around 172,000 commercial properties were empty, with further figures from 2021 suggesting that over 2 in 5 had been vacant for more than two years and over 1 in 5 had been vacant for over four years.
Manchester is one of the worst affected areas in the country, with vacancy rates ranging from 20% to 28%.
Which properties would the rental auctions apply to?
The rental auctions would only apply to commercial properties, not residential ones.
Warehouses and heavy industrial units would also be excluded, as would commercial properties in remote areas or unconcentrated streets where there are no other properties of a typical high street use.
Local authorities would have the responsibility for designating the high streets in their authority boundaries as an area where the rental auctions could apply.
The property must have been empty for at least 12 months in a two-year period.
This could be 12 months continuously or a cumulative total of 12 months spread over the two years.
The Minimum Energy Efficiency Standards mean landlords cannot normally grant tenancies of commercial properties if the Energy Performance Certificate rating is below E.
However, the government is considering disapplying the requirement for a property to have a minimum rating of E in the case of high street rental auctions.
What is the process for a high street rental auction?
After identifying a property that meets the criteria for a rental auction, the local authority would send an initial notice to the landlord.
The landlord would then have eight weeks to find a tenant but would only be able to enter into the tenancy with the consent of the local authority.
The local authority can't withhold consent if the tenancy is for more than one year and is likely to lead to high street use.
If the landlord has not entered into a tenancy within the eight-week period, the local authority can serve a final notice.
The landlord cannot grant a tenancy without the local authority's consent once the final notice has been issued.
The landlord will have the right to appeal against the final notice.
If the landlord does not appeal against the final notice, the local authority then has 12 weeks to auction the property and complete an agreement for lease.
The lease itself would not have to be completed within 12 weeks.
How would the auction work?
The local authority would put together the auction pack, with input from the landlord.
The auction pack would include title documents, replies to enquiries, service charge details and other relevant information. Interested parties would be able to view the auction pack before the auction.
There will also be guidance on how the local authorities market the property before the auction.
Part of the government's consultation will consider which auction process to use, as there are a few alternatives.
The more traditional auction of 'highest bidder wins' may not be the most suitable as lower bidders may be able to offer value in other ways.
For example, a lower bidder may have stronger business finances or may be a local business rather than a chain which could be more beneficial to the local economy.
The government has proposed a 'sealed bid' process where bidders put forward the rent they would be willing to pay and provide details of their proposed use and supporting evidence of how they can meet the obligations in the lease.
The bids and supporting information would be sent to the landlord, and the landlord would choose the successful bidder.
What happens after a bidder is successful?
The successful bidder would enter into an agreement for lease with the landlord.
The agreement for lease may set out obligations on the landlord to bring the property up to a minimum standard of repair and condition, if required, and would allow the tenant time to request consent from the landlord for any fit out works.
The landlord and successful bidder would then enter into the lease itself.
Normally it would take several weeks to negotiate the terms of the lease between the landlord's and tenant's solicitor.
However, to speed up the process, the government has proposed a standardised framework for both the agreement for the lease and the lease.
The regulations will set out further details of the standard lease, and the government appreciates that some provisions, for example, service charge, would need to be flexible and have a range of options.
Some points would be fixed; however, for example, the lease would be excluded from the security of tenure, and there would be fixed provisions regarding more standard clauses such as interest on late payment, the tenant's obligations to comply with regulations and the landlord's obligation for quiet enjoyment.
How can I respond to the consultation?
You can respond to the government's survey by following this link- High Street Rental Auctions Technical Consultation - Department for Levelling Up, Housing and Communities - Citizen Space.
The consultation lasts until 23 June 2023, so any responses must be submitted before then.
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