Legal expert from Larken & Co of Newark explains law which aims to fill town centre premises empty for a year

We can all agree that vacant properties in town centres and high streets are not ideal for anyone, writes Nikita Pandey, of Larken & Co.

The Levelling-up and Regeneration Act 2023 (LURA) became law on October 26, 2023, and is a substantial piece of legislation creating many new laws relating to the property industry with the intention of speeding up the planning system, holding developers to account and encouraging more councils to put in place plans to enable the building of new homes.

Part 10 of the LURA has been introduced to combat property vacancy rates and restore the usage and perception of local high streets.

Once wholly in effect, Part 10 LURA will afford discretionary powers to local authorities to conduct compulsory high street rental auctions of qualifying commercial properties and enter contracts for tenancies as though it were the landlord.

What types of premises will this impact ?

Properties qualifying under the scope of Part 10 LURA would be properties on designated high streets or town centres that have been unoccupied either for whole of the preceding year or for at least 366 days during the previous two years; are suitable for high street use as a shop or office, or for services to the public, or as a restaurant/café or pub/bar, or for public entertainment or recreation or as a communal hall or meeting-place with such a use benefitting the local economy, society or environment.

What is the procedure ? The process of rental auctions under Part 10 LURA are yet to be detailed in regulations but will involve an initial letting notice served by the local authority on a landlord who owns a suitable high street shop meeting the qualifying criteria. An initial notice period will be granted, and the landlord will have a grace period to let the premises for a minimum term of 1 year for high street use. If the landlord is unable to let the property within the grace period, the local authority will serve a final letting notice on the landlord.

Once a final letting notice is served, the landlord can serve a counter notice appealing the letting notice on several grounds, for example, if the property did not meet the vacancy condition, or the property is not suitable for high street use or the landlord needs to retain possession of the property to carry out substantial works.

If the landlord does not appeal or is unsuccessful, the local authority can proceed with compulsory rental auction using a sealed bid auction process.

The local authority in consultation with the landlord will then choose a winning bid also considering other factors like the extent of obligations the tenant offers to undertake.

However, there is no current requirement to reserve a minimum rent, and this might impact the market.

If the landlord does not partake in the process, the local authority can still proceed with the rental auction and accept the highest rental bidder.

The tenancy terms required under Part 10 LURA are also not without controversies.

Landlords will need to ensure properties are in a safe, secure and stable condition and if not, the tenant can carry out works needed to bring the property up to such standards and charge it back to the landlord or set off the costs against the rent due or even terminate the rental agreement.

During the lease term, the tenant’s repair and maintenance obligations will be fixed to the condition of the property evidenced by photos before start of the lease term and the tenant will not be required to return the property in a better condition.

Although tenants will still need landlord’s consent to carry external or structural alterations, they will be able to carry out non-structural works without consent and will have a four-week rent-free period to do such works.

Tenancies will not have security of tenure and the tenant will need to vacate at the end of the term which could bring us back to status quo.

Part 10 LURA lettings by the local authority will also be deemed to have express consent of any superior landlord or mortgagee which could potentially circumvent mortgage or superior lease terms. Regulations on tenancy provisions are awaited but it will be necessary to strike a balance between the requirements of the parties if Part 10 LURA is to be effective.

Whilst the objective of Part 10 LURA is to rejuvenate high streets and town centres, economic and legal factors such as business rates, regulatory compliances and shifting consumer habits, amongst others, have not been wholly considered.

Part 10 LURA seems to indicate an effort to push landlords to relinquish control over the letting of their premises, but such a strategy may deter investors.

Further regulations when detailed will provide clarity as to whether the upshot is likely to put excessive strain and burden on local authorities who may struggle to monitor occupancy levels, issue notices and initiate the auction process.

We will see over the coming months how this approach will bring life back to our town centres and high streets.