Regeneration of the High Street or Forced Lettings?

All too often, there are articles about the ‘death of the High Street’ and not surprising given the loss of retail giants such as Debenhams and House of Fraser whose former premises on Oxford Street are now being converted into offices and a roof top bar and restaurant.

The recent Levelling-up and Regeneration Bill (‘the Bill’) (https://bills.parliament.uk/bills/3155) states within its long title that it deals with regeneration, planning and the environment, to name a few.  However, the long title fails to mention that it also includes powers for local authorities (‘LA’) to take steps to let empty commercial premises.  No doubt this will be seen as a move to assist with regeneration of the high street. This provision is contained within Part 10 (sections 176 to 203) of the Bill ,which sets out:

• Subject to certain conditions being met, the LA may designate a high street as a ‘qualifying high street’;
• In relation to a qualifying high street, the LA may serve an Initial Letting Notice where a property has been vacant for at least a year or, in the immediate 2 years prior, has been unoccupied for at least 366 days. The Initial Letting Notice gives the Landlord (‘LL’) an opportunity to let the property before the LA exercises its power to place the property in a Rental Auction.
• During the period of the Initial Letting Notice (it is valid for a period of 10 weeks), the LL may not grant any new leases to a third party without the LA’s consent. An exception to this is where the LL had, for example, entered into an agreement for lease prior to the Initial Notice being served.
• The LA’s consent must be given within a reasonable period of time and any lease the LL proposes to enter into must:

• commence within 8 weeks of the date of the initial notice;
• be for a term of at least a year – if there is a break clause which would reduce the term to less than one year then this will not satisfy this condition and;
• the LA must be ‘satisfied that the tenancy or licence would be likely to lead to the occupation of the premises for a high-street use’

If the LA’s consent is not obtained, the Lease will be void, although it may become no longer void where, for example, the LA does not serve a Final Letting Notice.

• If the property remains vacant prior to the Initial Letting Notice expiring, a Final Letting Notice will be served.
• During the period of the Final Notice, as well as not being able to let without consent of the LA, no works can be carried out without consent of the LA unless they are of an urgent nature. It is a criminal offence to carry out any works and the LL can be fined £2,500.
• The LL can serve a counter-notice within 14 days of the Final Notice. The grounds for appealing include:

• The LL intends to occupy the property for its business which will be carried on at the premises. The LL includes a company where the LL has a controlling interest;
• The LL intends to carry out substantial works/demolition at the property and could not reasonably carry out those works with a tenant in occupation; and
• The premises cannot be considered suitable for the use set out in the Initial Notice.

• An appeal notice must be served within 28 days of the counter-notice and the appeal will be heard at the County Court.

Should no counter notice be served/the Appeal fails, the LA can place the property into a retail auction and the LL will be required to enter into a new lease with the successful bidder.  Should the LL fail to enter into the new lease, and subject to certain conditions, the LA has authority to enter into the Lease.

There are still questions over:

• Will the rental have to be at least equivalent to the market rent? If so, how is this determined?

• Will there be a precedent lease? The Bill states that the new lease will be contracted out of the provisions of the Landlord & Tenant Act 1954

• As this is a commercial tenancy, will this be an FRI Lease or will the Landlord carry out repairs, to be recovered by way of service charge?

• Will there be the ability to have a rent deposit deed and/or an authorised guarantee agreement, especially where the successful bidder is not a strong covenant?

• What happens with Property that is mixed use where there is a flat above which can only be accessed via the retail unit below?

The Committee stage, where the Bill is examined line by line, is yet to be scheduled and so there may yet be changes. It is also hoped that at the same time that Part 10 comes into force, there will be a set of regulations dealing with questions such as those above.

How Part 10 will work in practice, when it receives Royal Assent and comes into force, remains to be seen especially whether the LA’s will engage these powers and serve the notices where LA’s are already struggling to recruit enforcement officers – the Royal Town and Planning institute found last year that 70% of LA’s have had difficulties in recruiting enforcement officers in the last 5 years and 73% have struggled to recruit in the previous year.

This seems to be akin to the LA’s powers under the Housing Act 2004 to issue an empty dwelling management order (‘EDMO’) to make sure that an empty residential property, which has been vacant for 2 years or more (the Bill also proposed to reduce this to one year), is used for housing.  How often EDMO’s are issued is not known; it is understood that the Mayor of London does not hold such data and the Government does not publish this data.