Controversial measures for real estate in the Levelling-Up and Regeneration Bill

England and Wales

Summary

The Levelling-Up and Regeneration Bill introduced into Parliament on 11 May 2022 contains a number of areas of interest for the property industry.

CMS has commented on the impact of the Bill on planning in its Law-Now Levelling Up and Regeneration Bill - Planning Reforms (cms-lawnow.com).

In this Law-Now, we comment on two issues that have attracted some controversy:

  • The right for local authorities to let certain vacant high-street premises through a High Street Rental Auction. While the property owner has the opportunity to avoid this through letting the premises itself and also has appeal rights, some may regard the proposals as an undue state interference with private property rights. Importantly, no compensation is payable to the landlord in respect of the letting of the premises. This affects England.

  • The right for the Land Registry to collect information about dealings with land – this in part focuses on developer’s contractual arrangements to control land, such as rights of pre-emption, options and conditional contracts. It also identifies attempts to evade the disclosure requirements under the Economic Crime (Transparency and Enforcement) Act 2022.  There may well be concerns about how sensitive information may be protected in responding to the disclosure requirements. This affects England and Wales.   

We set out below some of the details of the proposals in the Bill, which may change as the Bill goes through Parliament.

Letting by Local Authorities of Vacant High-street premises

To which premises does this apply?

This applies to premises that are:

  • on a high street or within a town centre which has been designated by a local authority; and

  • considered by the local authority to be suitable for a high street use.

A local authority may designate a street in its area as a high street or an area as a town centre if it considers that the street or area is important to the local economy, because of a concentration of high-street uses of premises on the street or in the area.

Certain streets or areas may not be designated by a local authority, an example being an industrial estate where transactions or business are principally conducted between one business and another.

High-street use covers a variety of uses including office, retail, restaurants, public entertainment and certain industrial.  

A designation is registrable as a local land charge at the local authority and the local land charges search at the local authority would be the means of finding this out.

Premises which qualify are called “qualifying high-street premises”. The Government specifically says that premises used wholly or mainly as a warehouse do not qualify.

“Suitable high-street use” is the term given to premises considered suitable by the local authority for a high-street use and this is referred to below.

Requirement to satisfy certain pre-conditions

Before a local authority may start the procedure preliminary to letting qualifying high-street premises, the following conditions must be satisfied:

  • Vacancy condition; and

  • Local benefit condition.

Vacancy condition

The vacancy condition is that the premises must be unoccupied on the given day and either have been unoccupied for the whole of the previous year or for 366 days within the previous 2 years.

Days in which premises were unoccupied before the relevant provisions of the legislation come into force can count towards the assessment of the vacancy condition. Occupation of premises by trespassers will not count towards assessment of this condition.

Occupation of premises for the purpose of assessing the condition has to involve the regular presence of people at the premises.

Local benefit condition

The local authority must consider that the occupation of the premises for a suitable high-street use would be beneficial to the local economy, society or environment.

Procedure preliminary to compulsory letting

If the vacancy condition and local benefit condition are met in relation to qualifying high-street premises, the local authority, before letting, has to serve an initial letting notice on the landlord (who is the person entitled to possession of the premises and who can grant a tenancy of the premises of one year or more).

The initial letting notice will be in force for 10 weeks, during which a final letting notice must be served. A letting notice is a local land charge, again discoverable by a search of the local land charges register.

Requirement for consent to letting while initial notice in force

The initial letting notice gives the landlord an opportunity to let the premises to avoid the local authority exercising its power to carry out a “High Street Rental Auction” (see below). Before it can let the premises, the landlord must obtain the written consent of the local authority to the letting.

Consent is not required where the landlord is transferring or surrendering its interest in the premises. The local authority is required to respond to a landlord’s request for consent within a reasonable time after it is sought. Consent is not required where the tenancy is granted pursuant to an obligation that bound the landlord before the initial letting notice took effect, such as pursuant to an agreement for lease, but this exception does not apply to a tenancy granted pursuant to an obligation that was conditional on service of an initial letting notice. The letting will be void if the landlord does not obtain consent from the local authority (and no exception applies). There are circumstances where a tenancy, licence or agreement which is void, is no longer treated as void. For example, the local authority does not trigger the procedure for letting by serving a final letting notice and the parties to the tenancy, licence or agreement have treated it as valid.

The local authority must consent to the letting, where the letting (which can be by way of licence or lease) is for one year or more and would be likely to lead to the regular presence of persons at the premises. The term of the letting must begin within 8 weeks of the initial letting notice taking effect. A letting will not be considered to be for one year or more if it includes a landlord’s break right within the first year. 

Final notice

If the landlord does not let the premises in accordance with those requirements, the local authority may start the procedure to let by serving a final letting notice on the landlord. The final notice must be served by the local authority within a 2-week window starting 8 weeks after the initial letting notice took effect. The local authority has a 14-week window (at the end of which the final notice expires) to complete the procedure for letting, but this can be extended where the landlord serves a counter-notice or brings an appeal.

While the final letting notice is in force, there are restrictions on the landlord letting the premises. The landlord is required to obtain the written consent of the local authority to any letting and the Bill’s provisions for consent are similar to those for the initial letting notice mentioned above, including that the letting is void if consent is not obtained when required.

The local authority’s consent is required to the carrying out of works to the premises and it is a criminal offence with a fine of up to £2,500 for failing to obtain such consent without reasonable excuse.

Landlord’s counter-notice

The landlord can appeal against the final letting notice:

  • by giving a counter-notice (specifying its grounds of appeal) to the local authority within 14 days of the final letting notice taking effect; and

  • if the local authority has not withdrawn the final letting notice within 14 days of receipt of the counter-notice.

There are a number of grounds of appeal including:

  • the premises cannot reasonably be considered suitable for the use identified in the final letting notice as the suitable high-street use

  • the landlord intends to occupy the premises for the purposes of a business to be carried on by the landlord – references to landlord include a company in which the landlord has a controlling interest and a person who has a controlling interest in a landlord company.

  • the landlord intends to carry out substantial works of construction, demolition or reconstruction affecting the premises, and could not reasonably carry out those works without retaining possession of the premises.

The appeal must be brought within 28 days of the counter-notice being received by the local authority.

Procedure for letting

High Street Rental auctions

The first stage of the procedure for letting is for the local authority to arrange a rental auction for the qualifying high-street premises. A “rental auction” is a process for finding persons who would be willing to take a tenancy of the premises and ascertaining the consideration that they would be willing to give. Much of the detail of the rental auction process will be provided in regulations to come.

Tenancy contract and the tenancy

The second stage is for the local authority to enter into a contract (the “tenancy contract”) with the successful bidder from the auction, to allow for works to be carried out to the premises before the tenancy is granted and to grant a “short-term tenancy” of at least one year and not exceeding five years (and this could be less if the landlord has a leasehold interest that is shorter). The local authority has the power to enter into the contract as if it was entered into by the landlord (which some property owners may find disconcerting). A copy of the completed contract will be sent to the landlord by the local authority. The contract can be entered into if:

  • the final notice is still in force;

  • the period for any appeal by the landlord has expired;

  • the rental auction has been carried out; and
  • no tenancy, licence or agreement has been granted by the landlord with the consent of the local authority.

The terms of the tenancy contract (i.e. the agreement for lease) and the tenancy itself are dealt with in the Bill and regulations to come. The local authority is required to have regard to the landlord’s representations in deciding the terms of the contract and tenancy. The security of tenure provisions under Part II of the Landlord and Tenant Act 1954 will not apply to the tenancy.

The local authority has the power to grant the tenancy as if it was granted by the landlord, where the landlord fails to grant the tenancy as required by the contract. A copy of the completed tenancy will be sent to the landlord by the local authority.

The tenancy contract and tenancy will be deemed to be with the express consent of any superior landlord or mortgagee, which again may well prove disconcerting.

Information powers

Local authorities are given the power to require the provision of information from landlords and others about the premises in connection with a “High Street Rental Auction”. It is a criminal offence with a fine of up to £2,500 if a person without reasonable excuse fails to comply with a request for information or gives false information.

The local authority also has powers to enter and survey the premises subject to controls in the Bill.

Information about dealings in land

The Secretary of State is given an enabling power under the Bill to require the Land Registry to collect:

  • information on the ownership of land, of relevant rights concerning land and others with the ability to control or influence (directly or indirectly) the owner of relevant interests or rights relating to land. “Control or influence” includes control or influence by reason of interests or rights in a company, partnership, trust or other arrangement

  • transactional information about instruments, contracts and other arrangements affecting interests and rights relating to land. “Transactional information” includes details of the parties, persons acting on their behalf, terms of the transaction, details of persons providing professional services, source of funds and documents evidencing the transaction.

The information requested may pre-date when the legislation comes into force. Much of the detail is awaited in regulations to come.

The Government is likely to use this information:

Future regulations may:

  • creates a criminal offence relating to a failure to comply with an information requirement or the provision of false or misleading information, with penalties of a fine and/or imprisonment

  • prevent the Land Registry registering a disposition or entering a notice or restriction until the required information has been provided.

This article contains some public sector information Levelling-up and Regeneration Bill (parliament.uk) (© Parliamentary copyright House of Commons 2022) and Levelling-Up and Regeneration (parliament.uk) (© Parliamentary copyright 2022) licensed under the Open Government Licence v3.0 Open Government Licence (nationalarchives.gov.uk)