Compulsory Rental Auctions – a ‘force’ for good on the high street…?
Powers to allow councils to ‘force’ landlords to let highstreet premises that have been empty for more than a year, have been outlined in the Queen’s Speech.
A parliamentary bill allowing councils to hold a ‘Compulsory Rental Auction’ to find occupiers for qualifying properties is to be part of the government’s levelling-up programme.
So, from a placemaking perspective, will the new powers have a positive impact on the vitality and viability of town and city centres, and what extra operational detail is needed to gauge their likely effectiveness?
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10 May 2022
By Iain Nicholson, IPM Member, Founder, The Vacant Shops Academy and Professor Cathy Parker, Chair, Institute of Place Management, Research Lead, High Streets Task Force
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Vacancy, where it is long-term (over a period of 5 or more years), is an important indicator of the viability of a town or city centre. If a place has vacancy rates above the national average for a sustained period of time then that signifies some structural issues – too much unadaptable space, poor connectivity, etc. In the short-term, some vacancy is positive as it allows new businesses to trade on the high street, and those already there to grow or downsize, ensuring the retail and non-retail offer can adapt to changing catchment needs.
The experience of IPM members running empty shops projects suggests that the most effective approach to reducing vacancy rates and improving the mix of use types, is for key stakeholders - agents, landlords, businesses, communities and councils – to work together. We’d be closer to achieving this scenario if, to help deliver on the new policy, councils are given a responsibility to report on vacancy rates and to play their part in tackling empty shops issues. The resulting partnership approach would mean fewer cases getting to the point where a compulsory rental auction is needed.
Understanding vacancy
Some councils already do annual vacancy checks as part of planning policy work, and changing occupancy is recorded for business rates billing. A number of agencies – including Local Data Company, Springboard and Centre for Cities - provide vacancy data. But to know when a unit hits the one-year auction trigger date and its actual status at that point, councils will need more than a simple tally. That’s because sometimes, though visibly empty, units may not actually be available to let. Will the government allow exceptions in these cases?
• The unit may be in a development site or scheduled for refurbishment, or
• The previous tenant went into administration or has left but is still paying rent on an unexpired lease, so the landlord is not in control, or
• The unit, though unoccupied may be under offer, at heads of terms or in refit, with a new tenant readying to open there.
To know this, councils or a partner (such as a Business Improvement District) will have to engage regularly with agents and landlords. That will require capacity and resources. Our experience with running the High Streets Task Force suggests most councils do not have the capacity. Other organisations such as BIDs or civic groups can provide information and, in some instances, manage partnerships but councils will still need the capacity and capability to be involved. Will the government provide that?
And there are other operational questions:
• What will happen if the landlord is the council?
• Who’ll decide which bidder ‘wins’ the auction and how?
• How long will agreements made via the auction process last?
• What powers will the council have to ensure the ‘winner’ actually occupies the unit, and who has enforcement responsibility if, for example, they don’t pay the rent or comply with maintenance requirements?
Early feedback on the new policy from property and placemaking colleagues has identified other concerns.
Supply-side barriers
Property sector colleagues have questioned whether it’s needed at all. Why, they say, would the landlord leave a unit empty, forgo rent and (where that’s a requirement) pay business rates, when they could let it? Sadly, empty shops projects experience suggests there are properties with interest from would-be occupiers being frustrated by ‘supply-side’ barriers. These include size, cost, location and condition, but the landlord perspective can be a factor. This might be influenced by the importance to them of the place and significance of the property in their wider holding, the impact of letting at a certain rent level on the landlord’s financial arrangements, their agreements with other tenants in the town or city centre or other occupiers of the building, business rates relief implications, any legal and insurance costs or the need for landlord-funded works (or a rent-free period) to make the unit ready to occupy. For these reasons, we have come across plenty of examples of properties not being marketed proactively or at all, and been told that a letting doesn’t suit the landlord’s circumstances. It’s these cases the new policy might helpfully tackle.
Many of our Business Improvement District members believe that reform of business rates would be a bigger contributor to reducing empty properties than targeting landlords. There is also support for this view from our agent colleagues, who point out it is larger vacant units that are liable for business rates which are harder to rent.
Unintended consequences
Another cautionary note has been on ‘unintended consequences’ i.e. a concern that landlords with properties headed to the one-year empty point might opt to avoid the auction by converting to residential or letting to a use that quickly gets them an occupier. While both would reduce the number of empty properties it may not be in a way that improves the mix of uses in a place or adds to its vitality and viability. Avoiding this outcome might require a review of current permitted development and use class regulations.
In summary, there are questions to answer and operational details needed, but additional government focus on this key highstreet challenge is welcome. And if councils are given responsibility and the resources they need to maintain an ongoing audit and work with agents, landlords, businesses and their community on tackling empty shops issues, the ‘force’ element might only be needed as a turn-to in cases where the partnership approach is unsuccessful. It could be a useful but only occasionally needed tool in the placemaking toolkit.
The IPM is hosting a policy round table next week, inviting members that have expertise across all the interests impacted by the new legislation. After the meeting we will be publishing our analysis of how the policy is likely to influence vitality and viability, and some good practice guidance for Members.
About the author
Formed in 2006, the Institute of Place Management is the international professional body that supports people committed to developing, managing and making places better.