Charlotte Fielding – solicitor in our Dispute Resolution team – discusses commercial rent arrears…
Distressed about commercial rent arrears?
The Tribunals Courts and Enforcement Act 2007 and the Taking Control of Goods Regulation 2013 contain changes which are intended to modernise the collection of commercial rent arrears. The changes relevant to the collection of rent arrears of commercial property came into force on 6th April 2014. Residential tenants have long received the benefit of fairly significant legal protection in relation to the collection of rent arrears. The new commercial procedure is giving commercial tenants a taste of this protection.
One of the key changes brought in by the new legislation is in relation to the remedy of distress. Distress is a remedy which has been available (under common law) to landlords since medieval times. It allowed a landlord (or the landlord’s agents) to enter the property to seize goods to the value of the arrears and sell the goods to satisfy the debt. The new legislation has abolished the right.
The new legislation has created a new process called the Commercial Rent Arrears Recovery Procedure (CRAR) to replace the common law remedy of distress. CRAR allows a certified enforcement agent to attend the property and take control of goods. The landlord cannot exercise this procedure themselves. The enforcement agent is able to attend the property and remove goods and secure them elsewhere or enter into a controlled goods agreement with the tenant (similar to a walking possession agreement under the law of distress).
The goods can then be sold for the best price which can reasonably be obtained. This sale cannot take place until seven clear days after removal of the goods and the tenant must be given seven clear days notice of the sale.
CRAR can only be used to recover rent under a written lease of commercial premises. This is the sum paid for the possession and use of the premises. It is common for leases to reserve other items as rent, for example, service charges, council tax and insurance. CRAR cannot be used to recover these sums even if they are reserved as rent under the lease. It is also important to note that if CRAR is used then the landlord will waive any right to forfeit the lease (i.e. bring the lease to an end) on the basis of those arrears of rent. A new right to forfeit the lease may develop in the future.
In order to use the CRAR procedure the enforcement agent has to give at least seven clear days notice before CRAR is to be exercised. This may prove beneficial to the landlord as some enforcement agents consider that some tenants may make payment upon receipt of this notice and not require a visit by the enforcement agent (which increases the fees payable). However, there are no figures available yet to support this assertion. There is also a potential risk that the provision of this notice may mean that the tenant removes any goods from the property prior to the enforcement agent attending thereby defeating the procedure and reducing the chances of a successful recovery.
If you are a landlord or a tenant who is thinking of exercising CRAR or CRAR is being exercised against you and you would like some advice please contact a member of our Dispute Resolution team who will be able to assist.