Are High Street Rental Auctions the silver bullet to high street woes?
As part of the government's commitment to revitalise declining high streets, High Street Rental Auctions were brought into force in England on 2 December 2024 pursuant to the Levelling-up and Regeneration Act 2023.
Under the legislation, local authorities are permitted to auction leases for commercial properties with a suitable high street use so long as the property is in a town centre or on a high street and has been vacant for over 365 days within a 24-month period (the "Vacancy Condition"). The list of qualifying premises is extensive and includes shops, offices, bars and restaurants.
It is worth noting that the Government has committed circa £1 million in funding to facilitate the implementation of HSRAs and that HSRA tenancies are considered to have the deemed consent of lenders so may be a viable option when lender's conditions would otherwise prevent a tenancy occurring.
The Government's explanatory memorandum states that the purpose of the legislation is to revitalise high streets and improve local economies in areas with high vacancy rates; encouraging collaboration between local authorities and landlords in the first instance before proceeding with the rental auction process. We will explore some of the key challenges that loom for HSRAs.
Key challenges
Economic challenges, as well as the COVID-19 pandemic, have been a significant contributor to the rise in vacant premises and decline of the high street. These factors appear to have been overlooked by the government which has laid the blame at the door of overly selective landlords. Over the course of the pandemic the vacancy rate of high street properties in the UK rose from 11.1% in 2019 to 14.5% in 2021 by the end of the pandemic. The vacancy rate remained unwaveringly high in the final quarter of 2023 at 14.3%.
The interventionist nature of HSRAs, whereby local authorities can use their new powers to force lettings on landlords, will be concerning to landlords who own qualifying premises, particularly if landlords are made to bear the costs of ensuring the property meets minimum standards. On the other hand, panic may be premature given that landlords do have control over the lease agreement negotiations for the property once a successful bidder is identified. Therefore, landlords can ensure standard responsibilities and fees are covered by the successful bidder who will become their tenant and hopefully minimise their financial burden.
Given that local authorities are already under resourced, the limited £1 million in funding coupled with the stringent nature of the HSRA process will likely restrict the use of HSRAs. This could be particularly problematic in areas with the highest vacancy rates which are most in need of the HSRA process. Data from the Local Data Company has also revealed high vacancy rates are especially pronounced in the North East where 17.9% of high street properties are empty. To offset this, the Government funding should be strategic and part of it should be ringfenced for areas with the highest vacancy rates, especially if these areas also have particularly under resourced local authorities.
What lies ahead…
These practical challenges will probably render HSRAs a last resort, to be used in areas with consistently pronounced vacancy rates where landlords are being uncooperative. The threat of HSRAs being imposed on qualifying premises may incentivise landlords to take action to find a suitable tenant before any control is relegated to the local authority via HSRAs. Landlords should take advantage of the window to let their property themselves and the numerous grounds for them to counter-notice before local authorities act.
Conversely, landlords may try to find loopholes to escape the HSRA process by looking for ways to avoid their property being defined as a "qualifying premise" pursuant to LURA. It is likely that landlords will test how substantial and sustained occupation of the property must be to prevent the property meeting the Vacancy Condition. Premises which do qualify may still avoid being the subject of a HSRA, as the powers assigned to local authorities are permissive meaning that local authorities are not legally obliged to act on them.
HSRAs are the first step on the road to revitalising high streets and further measures will likely be required. It is positive to see the government committed to the future of retail in the UK; with the scheme aimed at benefitting both local communities and the wider economy. Ultimately, we will need to wait and see if and how local authorities implement their new interventionist powers.
This article appeared first in CoStar on 17 February 2025.
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