Planning matters

The plight of the British high street is no better illustrated by the rise in vacancy rates. By the third quarter of 2024, high street vacancy rates had reached 17.6%, while shopping centres recorded a rate of 14.0%[1].

On 7th November 2024, the Government published the Levelling Up and Regeneration Act 2023 (Commencement No 6) Regulations 2024. Set to take effect on 2nd December 2024, this secondary legislation outlines the process for local authorities to auction leases for long-vacant high street properties.

However, how will these rental auctions look like in practice, and can they turn the tide in revitalising our town centres?

As explained in my colleague Emily Thomson’s Blog (Auctioning the High Street?) rental auctions were originally one of the headline measures in Part 10 of the Levelling Up and Regeneration Act (‘The Act’). Rental auctions seek to transform the roles of local authorities by giving local authorities the powers to let vacant high street and town centre properties without requiring the consent of the owner or any superior landlords or mortgagees.

The Commencement No 6 Regulations, introduced by the Government, detail the operational backbone of the rental auction scheme by setting the parameters for local authorities’ involvement and the procedural steps that must be taken before a rental auction can proceed.

As established by The Act, for rental auctions to apply, the premises in question must be located on a street designated as a "high street" by the local authority. The act defines “qualifying high-street premises” as being any that are “situated on a designated high street or in a designated town centre” and if “the local authority considers them to be suitable for a high-street use”.

The Act sets out a very wide definition of high street uses and crucially is not confined to retail. Indeed, the definition of high street premises range from uses such as shops, offices, restaurants/cafés/bars, public entertainment, community halls and manufacturing.

In theory, this expansive definition appears designed to reflect the evolving nature of high streets whereby economic, social and cultural activities increasingly overlap. Whilst this seemingly holistic approach is encouraging, it remains unclear how this emerging tool will be able to ensure consistency in re-occupying premises amongst different use classes.

To qualify for intervention, premises must meet the definition of "Vacant" as set out in the regulations. A unit is considered vacant if it:

• Has been continuously unoccupied for at least one year, or
• Has been vacant for at least 366 days in the previous two years.

Part 10 of the Act additionally introduces the ‘Local Benefit Condition’, whereby the Local Authority must demonstrate that reoccupying the premises would benefit the local economy, society, or environment.

The Commencement Regulations also introduces a new temporary Permitted Development (PD) Right. As detailed in an explanatory memorandum accompanying this regulation, this right enables the temporary change of use for "qualifying high-street premises" to a "suitable high-street use" for the duration of a tenancy.

Class DB, the new temporary PD right, permits the conversion of eligible high-street properties to a suitable use under permitted development. However, two conditions must be met for this right to apply:

The local authority managing the rental auction must notify the local planning authority of the intended high-street use, the start date of that use, and the date it will cease.

At the end of the tenancy, the premises must return to their original use, as mandated by the legislation.

The commencement regulation sets out a step-by-step framework for local authorities to follow when implementing a Rental Auction.

If both the vacancy and local benefits conditions are met and are a qualifying high street premises, the process begins with the issuance of an Initial Letting Notice to the landlord.

This notice serves as a formal warning, notifying the property owner that the local authority intends to intervene if the property remains vacant. While the notice is in effect (up to 10 weeks), the landlord is restricted from letting the property without the council’s written consent.

Landlords can still let the premises during this period if they meet specific conditions, such as entering into a tenancy for a minimum of one year and demonstrating that the letting will result in regular occupation of the premises.

If the premises remain unoccupied eight weeks after the initial notice, the local authority can issue a Final Letting Notice (FLN). This notice lasts for 14 weeks and places stricter restrictions on the landlord, preventing them from letting or altering the premises without explicit council approval.

The Final Letting Notice is effectively the precursor to the rental auction. It signals the council’s readiness to take over the process if the landlord does not act within the designated timeframe.

Landlords have 14 days from the Final Letting Notice to issue a counter-notice stating their intent to appeal, citing one of seven permissible grounds, such as the need to carry out substantial works requiring possession of the premises. If the FLN is not withdrawn, landlords have 28 days to file an appeal with the County Court. If no appeal is made and the premises remain unlet, the local authority can proceed with the rental auction.

Once the final notice period ends, the local authority can begin a rental auction after surveying the premises and preparing a schedule of works to meet minimum standards, such as fire safety. While energy efficiency upgrades are not mandatory for the auction, landlords may face enforcement action for non-compliance during the tenancy.

The legislation states the auction process could last about 11 weeks with a six-week marketing period, identifies tenants and sets terms. At the end of the 11-week auction period, the local authority notifies the landlord that all bids are in. The landlord has two working days to select the successful bid, which does not have to be the highest. If the landlord fails to respond, the local authority can either reject all bids or select one, prioritizing the highest unless it is impractical. The local authority can then enter into a legally binding lease agreement on behalf of the landlord. If the landlord defaults, the authority can grant the lease directly.

The introduction of rental auctions in Part 10 of the Act threatens to put local authorities ‘in the driving seat’ of high streets and seeks to compel landlords to act. However, key questions remain surrounding both application and effectiveness.

As it currently stands, the initiative inherently suggests a degree of local authority intervention for which there may be little appetite (or resource) to implement on the Authorities side. It also imposes restrictions that landlords may view as overreaching and diminishing in their authority over property management decisions.

By compelling landlords to act without their consent, or forcing a position where occupancy is achieved simply to avoid triggering a rental auction process, Part 10 could potentially strain relationships between local authorities and property owners, creating potential friction or even legal disputes, or even worse, secure occupiers which are undesirable to the High Street. All of these could potentially undermine the effectiveness of the scheme.

Indeed, some may take the view that threat of transferring the whip hand to the local authority strikes at the heart of collective efforts at the public and private sectors working together to revitalise high streets.

Additionally, questions persist on how rental auctions will successfully promote re-occupation of premises in those areas with low demand where vacancies are symptomatic of deeper economic challenges such as declining footfall and reduced consumer spending. Certainly, a key question arises that if it was that easy, landlords would be able to find suitable tenants for vacant premises themselves? Therefore, it remains uncertain if rental auctions will be able to stimulate tenant demand in areas of low demand, whilst ensuring long term occupancy and balancing tenant quality, that can sustainability contribute to high streets.

As it currently stands, the introduction of rental auctions represents a bold, but as yet untested, step to addressing the persistent challenges faced by British high streets.

Whilst the remit of rental auctions primarily seeks to address vacancies caused by landlord inaction, our view is that these examples are few and far between and that vacancies often exist within the context of much broader economic challenges, such as declining demand, reduced footfall, and changing consumer habits, that are unlikely to be resolved solely through Local Authority intervention and rental auctions. Without addressing these wider challenges associated with British high streets rental auctions risks falling short in revitalising the high street in both a meaningful and lasting way. Our view is that this, ultimately, is likely to be a tool with limited reach.

Please get in touch if you have any queries on this and we will be happy to help. Alternatively, you can visit the Lichfield’s website, which is regularly updated and includes our analysis insights and thought leadership on the Act.