As previously covered on our Talking Property blog, on 6 April 2014, the new procedure for commercial rent arrears recovery (CRAR) will come into force. This will replace the law of distress, under which a landlord has the power to seize a tenant’s goods and sell them to recover the value of the tenant’s rent arrears.
CRAR is intended to be clearer and fairer, reducing the advantage landlords have over unsecured creditors and introducing greater protections for the tenant. A less attractive process for landlords may, however, lead to unintended results as landlords seek to protect themselves from increased risks.
When will CRAR apply?
CRAR applies to all commercial tenancies, as long as they are ‘evidenced’ in writing, with the sole exception of ‘tenancies at sufferance’ where the landlord allows the tenant to remain after a lease has expired. Landlords, but not tenants, can agree to waive their rights under the scheme.
What can the landlord recover?
CRAR can only be used to recover ‘rent’. It cannot be used to recover other sums, such as service charges, rates and council tax, maintenance or insurance premiums, even if these are reserved as rent in the lease. If the rent is inclusive, the landlord may only be able to recover the part that can be considered ‘rent’ under the regulations.
The landlord can only use CRAR if the tenant owes an amount equivalent to at least seven days’ rent, less interest or VAT, and excluding any deductions or set-off.
Notice of seizure
Landlords must give seven clear days’ notice to the tenant before seizing goods. This presents an obvious risk that tenants will remove goods before they can be seized – which the regulations do not forbid.
What can the landlord do to prevent this? The landlord can apply for permission to give shorter notice, if they can show it is ‘likely’ the tenant will move or dispose of the goods to avoid the seizure. This may be expensive compared with the value recoverable. A freezing injunction against the tenant is also possible, but is no less likely to be costly and difficult to get.
On the tenant’s part, the tenant may apply to the court to set aside a notice, or an order that no further steps be taken under it. The regulations do not set out what the tenant must prove for this to take place.
Seizure and sale
The landlord must give written authorisation to an ‘enforcement agent’ to seize the tenant’s goods. Once seized, the enforcement agent must make an inventory and value the goods. The landlord must give the tenant seven clear days’ notice of the sale, and if the tenant pays the debt in that time, the goods must be returned.
Rent from subtenants
The landlord will still be able to require subtenants to pay rent to them direct, until the tenant’s debt is paid, but must now give fourteen clear days’ notice to the subtenant.
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