Burlingtons examines Part 8 of the government’s new Levelling-up and Regeneration Bill 2022-23 and its implications for commercial landlords and tenants.
The Levelling-up and Regeneration Bill 2022-23
The Levelling-up and Regeneration Bill 2022-23 (“LRB 2022-23”) was introduced to the House of Commons on 11May 2022 following the publication of the government’s Levelling Up White Paper. The LRB 2022-23 was aimed as a step in tackling regional and local inequalities by encouraging private-sector investment in communities across the United Kingdom. The bill’s key impact on the commercial property landscape is that Part 8 of the LRB 2022-23 enables the letting of designated vacant high street premises through compulsory rental auctions by local authorities.
Which properties will be affected?
Under the LRB 2022-23, the premises must satisfy certain conditions to be within the remit of the proposed powers of local authorities.
Firstly, the property must be on a designated street or area that is “important to the local economy because of a concentration of high-street uses of premises in the area”.
Secondly, the property must be suitable for a “high-street use”. The LRB 2022-23 defines these uses to include:
- use as a shop or office;
- use for the provision of services to persons who include visiting members of the public;
- use as a restaurant, bar, public house, cafe or other establishment selling food or drink for immediate consumption;
- use for public entertainment or recreation;
- use as a communal hall or meeting-place;
- use for manufacturing or other industrial processes of a sort that can (in each case) reasonably be carried on in proximity to, and compatibly with, the preceding uses.
Thirdly, the premises has been unoccupied for the whole of the previous year or for at least 366 days out of the previous two years.
The proposed auction process
Once the premises is designated as “suitable for auction”, the local authority may serve an “initial letting notice” on the landlord. This provides the landlord with a 10-week period to let the premises, after applying for consent from the local authority to authorise the choice of prospective tenant (unless a pre-existing contract has been already signed with a tenant). Local authority consent must be given within a reasonable time if the length of the proposed tenancy is for at least a year and the local authority is satisfied that it will lead to the premises being occupied “for activity that involves the regular presence of people”.
If a suitable tenancy is not found within eight weeks of the service of an initial notice, the local authority may serve a “final letting notice” expiring at the end of a maximum 14-week period. During this period, the landlord cannot let the premises or carry out works to the premises without the local authority's written consent. Additionally, the local authority may now arrange for a rental auction of the premises. While future regulations are to be announced governing the auction process, it is believed that this will be under the control of the local authority, which will choose the successful tenant.
Landlords have the right of appeal (on certain grounds), by serving notice of such within 14 days of their receipt of the final letting notice.
Implications of the proposed bill
The granting of these powers in their current form to a third-party local authority will drastically alter the open market letting system and the commercial landlord and tenant dynamic. The LRB 2022-23 remains in its infancy and will be subject to amendment as it progresses through the legislative processes. Concerns and suggested early amendments raised about LRB 2022-23 have centred around:
- The selection criteria of the prospective tenants awarded tenancies through the auction process.
- The (lack-of) proposed guarantees for tenant covenants.
- The apportionment of responsibility if prospective tenants do not honour rental obligations potentially worsening the landlord and tenant relationship.
- The level of discretion granted to local authorities as to matching the market rent in a prospective area.
- The bill providing limited consideration for landlords who already use or intend to make use of non-conventional rental models.
- Which party will assume the Lessor’s obligations through the procedure of the granting of a lease by auction.
Considering the importance of these concerns raised by market stakeholders and the undoubted need for further clarification of the bill’s proposed system, it is yet to be seen if this is an appropriate solution for the ongoing fall in demand for commercial high-street properties in a wider context of decreasing high-street footfall.
This article is provided by Burlingtons for general information only. It is not intended to be and cannot be relied upon as legal advice or otherwise. If you would like to discuss any of the matters covered in this article, please contact Fionan Foo or write to us using the contact form below.