High Street Rental Auctions – What You Need To Know

To qualify for a High Street Rental Auction, the property must be situated on a designated high street or in a designated town centre and suitable for high-street use.

"High-street use" includes shops, offices, bars, restaurants, cafes used for public entertainment/recreation and communal halls.

The local authority must be satisfied that the property meets the "vacancy condition" and the "local benefit condition" before issuing an initial notice.

The vacancy condition is that the property has been unoccupied continuously for 12 months or at least 366 days (non-continuously) within a 24-month period.

The local benefit condition is that the occupation of the property for a suitable high-street use would benefit the local economy, society or environment.

The government has made it clear that High Street Rental Auctions will not be suitable for all properties on the high street.

An auction will not be appropriate where there is not likely to be a sufficient tenant base and demand for the property at a fair market rent and at the Minimum Standard.

The local authority has 12 weeks to auction the premises and complete the "tenancy contract" or agreement for lease.

During weeks 1 to 4 of the Auction Period, the landlord will be required to provide information about the property to the local authority.

The auction pack will include the agreement for lease and lease, evidence of the landlord's title, replies to standard enquiries, searches (which will be undertaken by the local authority) and other information where available e.g. EPC, gas safety, EICR, fire safety, asbestos survey.

During weeks 5 to 9, a marketing period follows where interested parties can register their bid. There is no minimum rental figure set out in the regulations, so tenants will be free to submit a bid for any rental amount.

However, tenants will only be able to bid once, and other bidders may outbid them, so it will be beneficial for tenants to submit a bid that they feel gives them the best probability of winning.

In weeks 10 to 12 of the Auction Period, the local authority must serve the bids to the landlord before a successful bidder is chosen.

The landlord only has two working days to decide which bid to accept.

The regulations do not give the landlord the right to ask for any financial information or references from the bidder.

The auction process concludes when the agreement for the lease is exchanged between the successful bidder and the landlord.

The legislation provides that if the landlord refuses to grant the lease, the local authority has the power to enter into the lease agreement and lease on the landlord's behalf.

At the start of the auction process, the local authority must commission a survey of the property.

If the property does not meet the "minimum standard" of repair and condition, then the landlord must carry out works to ensure the property is in a condition which is safe, secure and with any significant occupational risks removed/managed and from which a tenant may trade following their fit out.

The landlord must do these works at its own cost before the lease is granted.

The target date for completion is within three calendar months of the date of exchange of the lease agreement.

"Minimum standard" is defined in LURA and includes no significant water ingress, all doors being capable of operation for safe use, all fire safety requirements are in place, mains water, gas and electricity are connected (or capable of reconnection without significant expense to the tenant), shop fronts are provided (with glazing, frames and doors which are sound) and no fungal decay or mould growth which presents a risk to health or the structural integrity of the property.

The agreement for lease may provide for remedies for the tenant where the landlord fails to carry out the works, including step-in rights and the payment of liquidated damages at a rate of £55 per day if the works have not been completed by the target date.

Subject to any exemptions that may apply, the landlord will need to consider the Energy Performance Certificate rating for the property.

The current minimum level of energy efficiency provisions means that subject to certain requirements and exemptions, from 1 April 2023, landlords must not let non-domestic property if they have an EPC rating of band F or G. The landlord may, therefore, need to carry out additional works to the property to ensure compliance.

Following the completion of the landlord's works, the lease will be granted.

The guidance includes standard forms of tenancy for use by local authorities, which comply with the requirements of the Regulations.

There are forms for retail premises (whole and part), units in a shopping centre and pub premises.

The lease terms are set out in the regulations and are institutionally acceptable:

• The local authority decides on the length of the lease, which must be between one and five years. Where the landlord's interest is leasehold, the length of the term will be slightly shorter than the landlord's own leasehold interest in the property.
• The lease will be excluded from the Landlord and Tenant Act 1954, so the tenant will not have a statutory right of renewal at the end of the contractual term. Should the tenant wish to continue occupying and trading from the premises, they will need to agree on a new tenancy with the landlord prior to their tenancy expiration date. The new tenancy does not have to replicate the terms of the High Street Rental Auction tenancy and is at the discretion of the parties.
• The permitted use specified in the tenancy should not be outside the suitable high street use specified by the local authority ahead of the rental auction.
• There is a fixed four weeks' rent free period to allow the tenant to undertake its fit out works.
• The tenant's repairing obligations are limited by reference to a schedule of condition.
• The tenant may assign the whole of the lease with the landlord's consent, and there is an absolute requirement for the tenant to provide an authorised guarantee agreement. Other dealings are prohibited.
• There is no absolute prohibition on structural alterations by the tenant, but this is subject to the landlord's consent (not to be unreasonably withheld).
• The tenant must pay a rent deposit of the higher of £1,000 and three months' rent.