Legislation comes into force today allowing local authorities to let out empty high street properties via auctions without their owner’s consent, with the real estate industry warning landlords will be left facing insupportable and unreasonable costs.
The government says the new powers, which have come into force this morning (2 December), will breathe new life back into high streets and transform long-term empty shops. The "right to rent" commercial lots for businesses and community groups powers came into force through legislation laid last month. The legislation forms part of the previous government's Levelling Up and Regeneration Bill.
High street properties that have lain empty for more than 365 days in a 24-month period can now be auctioned on a one-to-five year lease by councils.
The government is committing over £1 million in funding to support the auction process which it says will help deal with the one in seven high street shops closed in the UK.
The legislation has proved immediately unpopular with real estate owners who believe the reasons for its introduction do not stand up to scrutiny.
Melanie Leech, chief executive, British Property Federation, has said that while the industry fully supports government plans to revitalise town centres, "political gimmicks" such as compulsory rent auctions are not the solution.
She says that no property owner wants their premises to be empty and it is the BPF's experience that property owners are willing to do zero-rent deals to avoid boarded-up shopfronts. But she said the burden of business rates and other occupational costs mean it is still unviable for many small and independent businesses to trade from town centre premises.
She says what is needed is a plan that incentivises rather than risks investment by property owners and supports those wishing to occupy their premises.
Ion Fletcher, Director of Policy, British Property Federation, said that High Street Rental Auctions will not fix empty shops on high streets on its own.
"These shops are often unlettable because of the perfect storm of changing shopping habits, less disposable income, and crippling business rates and this measure does little to address that. After all, property owners don’t want empty units – it means lost rental income, liability for business rates, and risks of vandalism and decay. The priority should be supporting and funding local partnerships that can address local issues, provide a long-term vision and draw in investment to address empty space. Government should explore innovations like Town Centre Investment Zones, where targeted funding and planning powers can bring local stakeholders together in regeneration, to revitalise struggling locations.”
Jenny Chappell, real estate counsel at the property law firm BDB Pitmans, said that while landlords will have little control over the rents achieved through those auctions, they will be left facing significant costs including those to bring the property up to the required standard of repair.
“These local authority-led auctions can be forced on landlords of shops, offices, restaurants, cafes, bars, community halls and manufacturing premises. ‘High streets’ are also widely defined to include property sitting on a designated high street or town centre or whatever a local authority considers to be suitable for high street use."
Chappell says landlords with older buildings will be forced to carry out works to bring those properties up to the minimum energy efficiency standards of EPC rating E and potentially, if MEES recommendations are adopted, to EPC rating C or B before a tenant takes occupation, and says this will leave them facing "crippling costs".
“Should a landlord fail to engage or default on a lease agreement, local authorities also have the power to grant leases directly to a tenant, passing on costs to the landlord."
Chappell said landlords do not choose to leave properties vacant and would rather have good quality tenants in place. "There are often very good reasons why a property is vacant, and these regulations do not appear to take a landlord’s concerns or long-term strategy for a property into account.
“Questions also remain as to whether hard-pressed local authorities have the time, expertise, cash and desire to move forward with these lease auctions. It is a space we and landlords will watch closely.”