Properties which can be auctioned

To fall within the scheme, a property must be suitable for high street use, which includes wide ranging uses like shops, offices, restaurants, bars, public recreation and entertainment spaces, meeting places, public facing services and even some manufacturing and industrial processes. As high-street use is defined by suitability rather than current use, properties which would be outside the scheme based on their current use may be caught if the local authority considers that an incoming tenant would convert the property for high-street use.

In order to qualify, properties must also have been empty for at least a year, or for more than 12 months in a 24 month period, and provide an economic or social benefit to the area.

Notice process

If those conditions are satisfied, the local authority can serve an “initial letting notice”, giving the landlord an 8 week grace period to let the property, but only with the local authority’s consent, which will only be given for a lease for a high-street use starting within that period for a term of at least a year.

If the landlord fails to let the property, the local authority can serve a “final letting notice” (FLN), which is valid for 14 weeks. During that period the landlord cannot let the property without the local authority’s consent, and cannot carry out any works to the property except urgent repairs.

The landlord can challenge the FLN through the County Court on various grounds, including failure by the local authority to satisfy the relevant conditions. In terms that are remarkably similar to sections 30(1)(f) and (g) of the Landlord and Tenant Act 1954, the landlord can also oppose a FLN on grounds that it intends to redevelop or occupy the property itself.

If the FLN is not revoked within the 14 week period, and either the time for the landlord to appeal has passed or the County Court has decided an appeal in the local authority’s favour, the property can be auctioned.

What does the auction process involve?

While LURA sets out a framework for a rental auction process, the details are subject to future regulations.

The government consultation, which ran from March to July this year, set out the government’s proposed scheme and envisaged an auction through sealed bids, with no reserve.

This would require bidders to set out the rent they would be willing to pay, as well as their proposed use of the property. The landlord would then choose the successful bidder, and would not have to choose the highest bidder but could instead look at factors like the covenant strength of the tenant, or the likely success of the proposed use of the property.

Terms of the new lease

Similarly, while LURA sets out a framework of terms to be included in the new lease to be granted following an auction, it leaves the detail for further regulations.

The government’s consultation proposals suggest that there will be a standard form of lease containing the key terms as well as some “flexible terms”, such as service charge and break clauses, which landlords can choose to add.

The consultation also suggested that leases may contain obligations on landlords to bring the property up to a minimum standard to make them safe for use, which comes with a clear cost implication. This is offset by a proposed disapplication of the minimum energy efficiency standards to these leases to protect landlords from additional expense.

As all of these points were the subject of consultation, they may well change in response to the industry feedback received,  so it will not be possible fully to understand what the auction process or the standard leases will look like until regulations are published. 

What does this really mean?

Part 10 of LURA is not yet in force, and will require regulations to flesh out the scheme, so its effects won’t be seen for some time yet.

While on the face of it, LURA gives local authorities sweeping powers to override landlords’ proprietary rights, in reality, it may be used sparingly.

The government commentary around LURA states that it is aimed at landlords who don’t engage with local authorities, rather than those who are actively trying to market their properties, or who are investing in redevelopment works.

Further, while local authorities have been given additional powers, there is no indication of an additional budget. The consultation queried whether local authorities must run auction processes themselves, or could contract them out to more experienced private entities such as agents and surveyors and, if so, who should bear the cost. Until this is clear, local authorities simply may not have the time, inclination or funds to auction off empty properties.

An earlier version of this article appeared in the EG on 4 December 2023.