COMMENT The idea of compulsory rental auctions – part of the draft Levelling Up and Regeneration Bill – has caused significant controversy since it was initially presented a few months ago, and with good reason.
While rejuvenating our high streets is absolutely a laudable pursuit, it seems that the government, via this Bill, is placing blame squarely at the feet of property owners for the decline of the high street, as opposed to the inexorable rise of e-commerce – a rise substantially catalysed by Covid.
The reality is that our high streets have been undergoing significant structural change for years. Not only do we have too much retail space in the UK, but also the wrong sort of space – hence the popularity of out-of-town retail among traditional high street retailers such as Next, Marks & Spencer and many others.
The government, however, seems to view landlords not only as the problem, but as a potential solution – deciding that they clearly do not want to let their premises out to occupiers and therefore forcing them to do so via this draconian idea. Landlords are to an extent a convenient punchbag for the government, enabling it to deflect attention from the real issue at hand – business rates.
Unfair and unworkable
The government has consistently failed to meaningfully reform business rates over the years – their most recent reform rendered almost meaningless for multiple retailers with a very strict cap on rates relief payable.
Business rate payments generate billions for the Treasury, but they are far from equitable given no such tax exists for online retailers, and globally there are very few examples of large-scale property-based taxation – with physical store occupancy cost ratios far more palatable in similarly developed economies.
Not only are compulsory rental auctions unfair, they are also unworkable in practice. The idea is that such auctions would be undertaken in streets local authorities deem “crucial” to the local economy because of a concentration of high street uses of premises in those locations. The issue is that local authorities have made no such designation, and to do so would require significant research into local property needs, which they would first need to undertake. To qualify, the property must also have been unoccupied for the whole of the previous year or been vacant for at least 366 days out of the previous two years. This in itself is far from easy to determine, and the government has not defined the precise meaning of “occupation” in this instance.
For example, would a property count as unoccupied if it is currently vacant for site assembly purposes pending a redevelopment, or if it is undergoing a major refurbishment? It is also not clear how the local authority will obtain occupancy information. To gain access to up-to-date information, local authorities would have to engage regularly with agents and landlords, which requires both capacity and resource that many of them do not have, and the government has certainly not offered to provide such resource.
Convenient timing
Other questions the government has failed to answer include: who will decide which bidder “wins” the auction, and how? Who has enforcement responsibility if the “winner” does not pay the rent? How is the tenancy granted to the successful bidder?
Finally, the timing of the announcement of compulsory rental auctions smacks of electioneering, given it came just before crucial local elections. Being seen as doing something proactive to revitalise the high street – particularly in “red wall” towns blighted by high vacancy rates – was certainly convenient timing. Compulsory rental auctions are yet another half-baked idea by a government that has paid lip service to saving the high street over the years, but has failed to act to reform the biggest single issue facing it – business rates.
Jonathan De Mello is founder and chief executive of JDM Retail
