Local authorities' now have new powers to auction off leases of vacant commercial units in Britain’s town centres and high streets. The new law came into effect on 2 December 2024 as part of the Government's initiative to rejuvenate struggling town centres.
Banks, pharmacies and pubs made up half the closures on Britain's High Streets in the first six months of 2024 according to recent research from PwC. With 38 shops closing every day and a total of 6,945 stores closed by September 2024 in town centre retail can only be described as in crisis.
However, the crisis may not be quite as bad as it seems. New store openings should be considered, so there’s only a net closure of around 12 stores a day. But this has been a continuing trend over several years with this year being no exception, in fact closures are just slightly higher than last year.
PwC found that on average there were 18 chemists’ closures, 16 pubs and nine banks shutting down every week in the first half of 2024. To diminish the decline, just one café and three convenience stores opened to replace them, highlighting the huge structural changes taking place in Britain’s town centres.
Banks in particular have been deserting Britain’s high streets leaving large vacant imposing buildings crying out for redevelopment into alternative uses in most towns across the nation.
Lloyds, Halifax, and Bank of Scotland, part of the Lloyds Banking Group, will continue to close branches as people move to online banking. The group plans to close 292 branches between 2024 and 2025. NatWest, RBS, and Ulster Bank, part of the NatWest Group, also plan to continue closing branches with at least 100 branch closures planned between 2024 and 2025.
More than 6,000 other bank and building society branches have closed or are due to close between January 2015 and the end of 2025.
The number of shops closing in Britain’s town centres has been increasing because of a multitude of factors: The cost of living has increased considerably since Covid and the Russian invasion of Ukraine. Inflation, higher interest rates and mortgage costs and more online shopping have all led to consumers spending less on the high street.
At the same time occupancy costs for retailers, higher energy and commodity prices, and staff costs have all led to diminishing retailers’ profits, while at the same time many businesses have been struggling to attract sufficient trained staff.
The Levelling-up and Regeneration Act 2023 which came into force on 2 December 2024 includes powers to help local authorities kick-start regeneration of their high streets by auctioning off those vacant units that sit vacant in the devastated retail locations.
The Government’s drive to rejuvenate Britain’s ailing town centres follows the Government’s 2023 public consultation, resulting in the new regulations which set out in detail the rental auction process which will lead to the auctioning off of tenancies in these vacant buildings.
Persistent long-term vacancies lead to cumulative decline, a snowball effect where even one persistently vacant unit devalues rental values, while several vacancies in the same block have a devastating effect on all of them. This decline has a knock-on effect for employment in the town, a lowering of living standards and a rise in anti-social behaviour. The result is a slum town where visits from well healed shoppers declines to zero.
The new powers afforded local authorities have been described in some quarters as draconian and bordering on infringing traditional property rights in English Common Law: The right to peacefully enjoy your possessions, including land, money, contractual rights, shares, leases, and intellectual property rights. The state is obligated not to interfere with this right, unless it's done lawfully and in the public interest.
Local authorities now have the power to compel landlords to let their landlords’ properties (presumably “in the public interest”) and possibly enforce them to carry out expensive works to bring up their premises, condition to meet a prescribed minimum standard, for example a minimum EPC rating.
Currently, Government regulations require that all commercial rented properties have an EPC rating of “E” or higher before being let to tenants but the future minimum EPC rating for rented properties will increase to a rating of “C” by 2030.
Local authorities will be in a position to take short-cuts on granting automatic planning consent for temporary change of use to a “suitable high street use”. They will also have the power to impose a criminal liability on any landlord who fails to provide detailed information about their premises, with timescales as short as one week.
The timely re-letting of stubbornly vacant premises in order to rejuvenate the high street is desirable but many question the local authority’s expertise when it comes to the commercial realities of letting property.
Can local authorities really be expected to outperform commercial landlords and their agents when it comes to finding suitable tenants for a vacant unit? Hard to shift vacant commercial units are often vacant for a reason. Property professionals remain sceptical about local government officers’ ability to find suitable tenants for these premises. There remains the fear that the premises will be stuffed with unsuitable occupancies.
There can be a world of difference between a commercially savvy landlord or agent and a local authority official whose sole aim is to fill that empty unit. What remains to be seen is if these people are sufficiently conversant with the vagaries of the economics of supply and demand to bring about the desired result – buildings occupied by suitable businesses such that they will contribute to a town centre revival while paying a reliable rent.
Commercial landlords strive to move hell and high water to achieve suitable lettings. Few relish the prospect of paying full business rates, higher insurance costs, utilities, securities and maintenance costs while all the while having no income from the building.
Many of these premises will require back-to-brick refurbishment including bringing them up to the required environmental efficiency standards and a change of use to achieve a suitable economic tenant.
Often these high street premises remain vacant because their landlords deem the cost of re-development and change of use is too high vis-à-vis the rent they can achieve when completed. Many small shops have remained empty simply because there’s a lack of demand for the number of retail units locally.
It will be a test of the Government’s plans and local authority officers’ skills to achieve a successful outcome with this, where often the property professionals have failed.
The Levelling-up and Regeneration Act 2023 empowers local authorities to hold rental auctions for empty high street properties if landlords fail to secure tenants within 12 months in a 24-month period. These premises must be:
The local authority must serve an initial letting notice on the landlord and after a minimum grace period of eight weeks, they must serve a final letting notice before progressing to the 12-week auction process. There is also a counter-notice and appeals process for the landlord.
The landlord has limited scope for preventing the authority taking over unless they can let the premises themselves or if they can show they intend to occupy or carry out substantial works to the unit and the landlord intends to occupy it, or if they can show the property is unsuitable for letting
The local authority has the power to enter the agreement for lease and grant the lease on the landlord's behalf, if necessary.
The enforcement on landlords with vacant premises with these seemingly draconian powers, where local authorities take over an auction of leases, will be of concern to many of them. The Government says the powers are intended for those areas struggling with high vacancy rates and areas in economic decline. They will compel landlords to engage with the process if they are not performing lettings themselves.
The process, the Government maintains, is aimed at persistent vacancy rather than having local authorities get involved in the natural tenant turnover. Trial schemes with local authorities: Bassetlaw, Darlington and Mansfield, will try out the auction process by “immediately taking action and working with [Government] to provide strategic guidance and best practice advice to other councils”.
There is a question mark over how many councils will use these powers in practice? Many councils are cash strapped and under-resourced. There is no avoiding the fact that the auction process will represent a considerable financial as well as a resourcing cost for local authorities. The Government has committed over £1 million in funding to support the scheme, but this amount is peanuts when spread across potentially 300 local authorities.
Also, it remains to be seen how successful the process can be and whether as claimed by the Government: it will “breathe new life back into high streets and transform long-term empty shops”.
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