Some of our Auckland high streets continue to suffer from vacant shops, with a range of factors to blame – the increase in online sales, covid-related closures, development of shopping areas out of town etc. As such, how to boost the Auckland high street has long been a topic of conversation and area of concern for the Government.
Whilst not entirely responsible, it is felt that disengaged landlords have contributed to some of the vacancies and, as such, the Government has introduced some new measures to tackle this problem.
These measures came into force on 2nd December 2024 and form part of The Local Authorities (Rental Auctions) (Auckland) and Town and Country Planning (General Permitted Development) (Amendment) Regulations 2024 (the Regulations).
The powers granted by the Regulations include;-
- Giving local authorities the ability to arrange for a rental auction of qualifying high-street premises without requiring the consent of the owner or any superior landlords or lenders; and
- providing a temporary planning permission for a change of use for the duration of the tenancy granted following the auction.
It is hoped that these measures will give a much-needed boost to our local high streets, but at what cost to a landlord?…
What is the procedure for a rental auction under the Regulations?
Once a local authority has determined whether the area qualifies as a high street or town centre, and whether a property is suitable for a rental auction (i.e. where the property has been unoccupied for a specific amount of time). They must then determine whether an auction would be beneficial to the local economy, society or environment. If this criterion is met, they will then serve an Initial Notice on the Landlord setting out the tenancy that they propose to grant at auction.
The Landlord has a grace period of 8 weeks to find its own tenant and enter into a tenancy (which must be approved by the local authority and must comply with the Regulations).
Once the grace period has expired, if the property has not been let, the local authority can serve a final notice on the Landlord, which starts the auction procedure.
The Landlord can then serve a counter-notice setting out grounds for appeal but must do so within 14 days of service of the final notice.
If the appeal is successful, the process stops. If unsuccessful or no counter-notice or appeal received, the local authority may auction the tenancy.
The Regulations provide a strict timetable for the auction process and require the landlord to provide certain information, including evidence of title and replies to enquiries (and key documents, such as; Fire Risk Assessments, asbestos surveys etc, if available).
The local authority must also instruct a survey with a view to preparing a schedule setting out works required to raise the premises to meet the ”minimum standard” as set out in the Regulations (i.e. to ensure that the property is safe and secure and compliant with other legislation, for example; fire safety etc) (referred to hereafter as ‘the Works’).
Some costs (including the cost of surveys) can be passed onto the successful bidder, whilst the costs of the Works will need to be met by the Landlord.
The auction process takes 11 weeks. By the end of the 11th week, the local authority must give notice to the landlord that all bids have been received. The landlord then has 2 working days to serve notice of its chosen bid. If they fail to do so, the local authority can choose to accept a bid or not to accept a bid.
The local authority can then enter the agreement for lease, binding the landlord to the arrangement.
The terms of the agreement and lease are prescribed by the Regulations, including a requirement for the landlord to carry out the Works required within three calendar months, with provisions for liquidated damages if they fail to do so, and limiting the tenant’s repairing liability by reference to a schedule of condition.
So back to the original question… what is the cost to the landlord?
As you can see from the auction procedure, landlords will be obliged to engage with the auction process. At a minimum, a landlord will be expected to review bids, and, depending on the condition of the property, carry out work to the property to bring this up to a “minimum standard”.
The cost of this work could be minimal, but, what if the property is in disrepair? The landlord will still be expected to pay for these works with a requirement to pay liquidated damages where the Works are not completed in time. Also, a landlord’s failure to comply with its obligations under the Regulations will be a criminal offence
Whilst not addressed in the Regulations, The Works may also include works to bring the property up to the standard required under the MEES Regulations. Currently, a property cannot be let if it has an EPC rating of below an E (which is set to increase in the future), so landlords may be forced to carry out energy improvement work to improve this rating. More information on the MEES Regulations can be found here.
The Regulations will also bind any future purchaser of the landlord’s interest, so it is important for buyers to check whether an initial notice has been served before they complete their purchase.
Whilst this all sounds daunting, it is important to remember that the Regulations affect very specific properties, and require an active local authority, who has the time (and funds!) to find vacant properties for auction and follow the auction procedure. Whether the Regulations will have the desired effect of boosting the high street, only time will tell.
If you would like more information on this topic, or if you have any questions, please contact Lauren Philpot.
