Background of the Levelling Up and Regeneration Act 2023
On the 23rd October 2023 The Levelling Up and Regeneration Act 2023 (“LURA” or “the Act”) received Royal Assent after it was first introduced to Parliament in Spring 2022 where it was welcomed by much of the real estate industry. The general purpose of the legislation is, as the wording of the Act suggests, to “level up” the economic and geographical disparities of the various regions within the United Kingdom. However as the Act has progressed through the House of Commons and House of Lords it has increased in scope and volume (indeed, the Act is over 500 pages long) culminating in a piece of legislation far more extensive than was probably initially anticipated.
A brief general review of the Act.
The LURA will have a very significant impact for the property market (all sectors) and planning generally, indeed, the Act is said to “speed up the planning system, hold developers to account, cut bureaucracy, and encourage more councils to put in place plans to enable the building of new homes”1 by the Government, as well as providing much greater disclosure about ownership and interests in land. A full review of all the provisions of the Act is beyond the scope of this article, however, one of the key points is the granting of powers by the Government to local councils to transform town centres by giving councils power to “work directly with landlords to bring empty buildings back into use by local businesses and community groups, breathing life back into empty high streets”2.
A study of this provision, notably the right for a Local Authority to find tenants for vacant high street commercial properties, along with its implications, will form the basis of this article.
High Street Rental Auctions – What properties may be affected?
The Act will apply to any commercial property (but not including warehouses) if the following conditions are met:-
- i) The property is situated in a high street or town centre (the determination as to “high street” or “town centre” will be as determined, conclusively by the Local Authority).
- ii) The property must have been vacant for more than 366 days in the previous 2 years (this is not necessarily consecutively).
iii) The property must considered suitable for high street use.
- iv) Finally, the property must also satisfy a “local benefit condition”. This is satisfied if the Local Authority considers that the occupation of the property for a suitable high-street use would be beneficial to the local economy, society or environment.
If the above criteria is met then the Local Authority would be able to require a landlord to enter into a commercial letting to a tenant. The risk and obvious concern for landlords is that such terms and conditions of a letting may not, in the ordinary course of events, have previously been agreed. That being said, one general piece of comfort for a landlord is that any commercial letting granted in accordance with the Act will seemingly be granted outside of the Security of Tenure provisions of the LTA 1954.
If the above conditions are met the Local Authority may then serve an Initial Letting Notice “ILN”. This notice is for a period of 10 weeks within which the landlord will be prevented from letting the property (this includes the granting of licences or any form of agreement allowing 3rd parties occupation or use) without the written consent of the local authority. However, the Local Authority will be obliged to grant consent to a letting or licence which fulfils certain criteria. This in effect represents a last chance opportunity for the landlord to find a tenant for the subject property on terms generally acceptable to the landlord (an important consideration in this regard, is that this opportunity is not replicated under the restrictions on letting during the final notice period – this will be discussed further in this article).
One final point to note is that the ILN will be subject to any agreements that predate the service of the ILN.
Final Notice and Rental Auction
Provided that the 10 week initial letting notice has not yet expired, no letting has been agreed and least 8 weeks have elapsed since the service of the ILN, then, if the property still remains vacant, the Local Authority can then serve a final notice “FN”
The service of the FN commences a 14 week timeframe during which the Local Authority has the right to enter the subject property into an auction for the purpose of finding a tenant. Further, following the service of the FN the landlord is prevented form dealing with the property in the usual way, which means but is not limited to, absolute prohibitions against the granting of a lease or licence (and indeed further an absolute prohibition undertaking any works / alterations to the Property etc) without the express consent from the local authority. The landlord does have a right to serve a counter notice against the FN if they believe that the property does not qualify, if the landlord intends to carry out significant construction works and cannot do so without possession, or if the landlord intends to occupy the premises for commercial or residential purposes (this point is considered in further detail in the following paragraph).
Further comments upon the form of auction and the type of letting agreement to be entered into by a tenant following the auction are beyond the scope of this article but professional advice should be sought when these provisions are finally confirmed by the Government by any landlord directly affected by the legislation.
Impact upon the Commercial property Letting Market
As stated noted, the letting of vacant commercial high street premises by Local Authorities is a right that will apply from a future unknown date and accordingly it is difficult at this stage to anticipate or predict what the uptake is likely to be. It is clear from the procedures described above that this may be a lengthy and complicated administrative process for a Local Authority however it may also, in practice, be a cost effective way for them to improve and re-invigorate high streets within their control.
Until final dates are set for the regulations to be implemented and accordingly express notice of Local Authorities desire generally to utilise these regulations, it is difficult, if not impossible to predict the impact. However, even bearing in mind and acknowledging these uncertainties other obvious questions still arise, notably, will a Local Authority have the same difficulty as the owner of the property presumably encountered in finding a tenant and finally what of course will be the overall effect on market rents?
At this stage it is impossible to answer any of these considerations / questions; Only time will tell!
Although the Act has received Royal Assent the date by which a Local Authority can bring into re-use vacant high street commercial premises has yet to be confirmed. However, it would certainly be prudent for landlords of vacant commercial properties to now consider what their plans in the future may be. Such plans may include future lettings, potential development or intend plans to occupy but whatever those plans may be, evidence should be collated which may, for example, be in the form of business plans, planning applications, renovations, alterations, ongoing marketing efforts etc (similarities may possibly be seen to the approach required by a landlord to object to a new letting of a 1954 Act protected Tenancy, on the grounds of demolition / reconstruction or even occupation, on a request for a new lease by a tenant etc); Clearly the more evidence a landlord has, the stronger the case will be at appeal!
This article is for guidance only and must not in any way be regarded as formal legal advice.