My Lords, I rise to speak to Amendment 426 in my name. I start by declaring an erstwhile interest as a former property manager of retail premises. It had a high street address, but the main shopping area had ceased to be in the high street some 30 years prior so, when we talk about high streets, it requires a little care in what one is actually referring to.
I pay tribute to the British Property Federation, which the noble Baroness, Lady Hayman of Ullock, mentioned in her excellent and substantial introduction to this group of amendments, but I must stress that these views are mine and not those of the BPF.
I observe that 27 clauses and a schedule is a lot of stuff to have in a Bill of this sort for something that I am advised is a really quite narrow application. However, I am looking in the direction of the noble Baroness, Lady Thornhill, because I suspect that she may have other views on this matter that she will doubtless enlighten us on.
The Government seek to attract overseas inward investment at scale, and UK real estate is one of those attractive asset classes across the world which has a great deal of further potential. I am told by the chief executive of Savills that commercial property investment in the UK runs at about £60 billion annually, about £30 billion of which comes from overseas, so this is a matter of considerable moment. However, we risk serial policy interventions, with a potential adding of burdens, increasing uncertainty and raised investor risk, which threaten to undermine this success story. Commercial rent collection moratoriums were one such thing. While I recognise that they were essential in the circumstances, they did not help.
High streets and retail properties are particularly challenged by the burdens from business rates referred to by the noble Baroness, Lady Hayman, and from floor space oversupply, loss of important anchor tenants, major shifts in shopping habits and general changes in work/life balance. Many properties in regions with the highest vacancies suffer from historic business rates levels, with instances of rates liability being in excess of 100% of the rent. That makes tenancies as unattractive as private sector investment and must be addressed.
Any measure that threatens investment should be looked at critically. As far as the retail investment sector is aware, according to the information that I have from the BPF, there is little pressure across the country to introduce these auctions, and the Government admit that they will be relevant in only a minority of cases to deal with empty properties. I appreciate that if a property is creating a particular problem, it must be dealt with, but given what we are being asked to put
into this Bill, I wonder whether we are not using a very large sledgehammer to crack a small nut. The BPF tells me that the likely costs of each high street rental auction to a local authority alone would exceed £6,000. At a time when strained local authority finance is prevalent, this is unlikely to make them a priority. That figure, if correct, is just the local authority’s cost—never mind the other costs for the other parties.
The Bill proposes a scheme which I find complex, with exacting compliance criteria and where decisions of local authorities in their own cause appear to be incontestable, such as a refusal of consent under Clause 184(1). Appeals under Clause 187 would be to the county court, which has its own problems of delay and cost, and may not stop there. Therefore, a potential liability to pay compensation assessed by the First-tier Tribunal on top of that makes this look like quite a chancy operation. None the less, if Ministers wish to press ahead with this measure, the Bill should better distinguish between those property owners seeking a tenant but who have been unable to find one, having used all reasonable endeavours, and those who are just being plain unco-operative, where I can see that there is a perfectly good explanation. I pay tribute to the points made by the noble and learned Lord, Lord Etherton, and the noble Lord, Lord Thurlow, in that respect.
Schedule 16, which sets out the grounds on which landlords might have to appeal against a local authority’s final letting notice, should therefore be amended to include a new Clause 8, as set out in my amendment. It provides a facility for the landlord to demonstrate reasonable attempts to market the property at or below what might be described as a reasonable market rent for at least a nine-month period. That is to provide a safeguard against any capricious approach to the matter. We know that there are difficulties on the high street, and in dealing with certain types of shop premises—their shape, their configuration, their position in the high street, and other things that are going on at any given time, possibly to do with planning policy.
4.30 pm
Government should not require property owners to undertake any action that places them in breach of their contractual arrangements—for example, if a tenancy required them to undertake works that conflicted with an agreed future use or required expenditure that necessitated borrowing in excess of agreed limits. That is the sort of thing that would apply here. Furthermore, if actions are being taken against tenants who are being dragged through the courts, it would be unreasonable for a landlord to be subject to these provisions in circumstances where that legal process was being pursued. Indeed, it might be seen to be prejudicial to the whole process.
I do not believe that property owners keep shops empty without reason. They lose rental income, face higher insurance premiums, run an increased risk of vandalism to the property and, needless to say, are liable for empty property rates. Many property investors have fiduciary duties to their shareholders that mean they must use all reasonable endeavours to let the property.
Forcing a rental auction is not a harmless exercise; it could result in what is termed, in the cant of the trade, a fire sale outcome, with sharply marked down rental figures. This has implications, such as the precedent that sets in the rest of the locality, and for certain types of shop. That would not be at all helpful.
Store vacancy rates correlate with wider economic health, as the noble Baroness, Lady Hayman, said. North-east England has the highest vacancy rates—18.8% in the first quarter of 2022—and the highest regional unemployment at 5%. The north-west and West Midlands also have relatively high levels of vacancies, correlating with higher unemployment. There are wider market factors at play here. Owners of real estate, and retail premises in particular, should not be made to bear the burden, uniquely, of the outcomes of government regional policies, or simply larger shifts in economic activity that are clearly outside their ability to control.
Empty shops are much more frequently a symptom than a cause of the problem. It may be high street decay but turning around the root causes of high street or town centre decline requires a framework to stimulate investment and activity. The British Property Federation tells me it has a model for this, called town centre accelerators. I suggest that His Majesty’s Government work with the British Property Federation to develop these across the country, especially where there is strong local leadership to deliver them.