On 6th April 2014, regulations implementing the Commercial Rent Arrears Recovery (CRAR) Provisions of the Tribunals, Courts and Enforcement Act 2007 will come into effect, bringing in major changes for commercial landlords in terms of recovery of rent arrears by levying distress on tenant’s goods.
The current position until 6th April 2014
A landlord is entitled to levy distress by entering into a tenant’s demise to seize goods to the value of any outstanding rent arrears, usually by using an authorised bailiff. This is a useful tactic for landlords to recover rent on commercial premises, when neither the Court’s permission nor prior to notice to the tenant is required.
This remedy has come in for strong criticism for allowing a landlord to recover outstanding debts from a tenant in priority to any other creditors and without notice.
Changes to the Law
CRAR will replace the landlord’s remedy of distress from 6 April 2014. Under the new CRAR scheme, the circumstances under which a landlord is able to seize and sell a tenant’s goods and offset the proceeds against rent arrears will be limited. The new CRAR Provisions set out various conditions that must be satisfied before a landlord is able to levy distress, including;
1. A lease in writing must exist;
2. No part of the premises comprised in the lease can be let or occupied for residential use;
3. The Landlord must give the tenants 7 days prior notice of an intention to levy distress under the CRAR by way of service of a notice of enforcement on the tenant;
4. The landlord is only able to recover basic rent arrears (plus VAT and interest) and unlike the current position, a landlord is not able to recover additional sums such as insurance rents and service charges, even where these sums are specifically reserved as rent in the lease;
5. Enforcement can only be effected by an authorised agent, and not as historically, by the landlord. Seizure must only be carried out during set hours as specified in the CRAR;
6. An authorised agent is only entitled to and permitted to seize tools of a trade up to the value of £1,350;
7. The landlord must, upon seizure, allow a period of 7 days before selling the goods that have been seized, unless that period would render the goods unsaleable or would substantially reduce their value.
What do the changes mean?
CRAR clearly gives a greater level of protection to tenants, as it makes it substantially more difficult for landlords to recover rent arrears under this process. The obvious drawback with the CRAR regime is that the landlord will be required to give 7 days’ written notice and allows the tenant an opportunity to remove any goods of value from the premises, or to enter into insolvency or a CVA ahead of seizure or alternatively to abscond from the premises.
Going forward there are certain steps the landlord will need to consider to be incorporated in the terms of a lease to counter the new CRAR measures. For example;
a. Considering two separate leases if there is a mixed use of property (e.g. a shop with a residential flat above) which will retain the benefit of the landlord being able to use the CRAR for any rent arrears on the commercial element;
b. If negotiating inclusive rent, a landlord should ensure that the lease reflects a sum for the use of and possession of the premises to allow the basic rent to be ascertained and therefore recoverable under CRAR;
c. The landlords will want to consider carefully what security and deposit, to take under the Lease given that the new CRAR regime will provide a more difficult route for rent recovery for landlords.
We of course wait with bated breath to see whether the CRAR will dissuade landlords from attempting to recover rent through the new procedure or whether the giving by a landlord of Notice of Enforcement may encourage tenants in arrears to pay up before further action is taken.
For further information please contact:
Edward Thompson, Staines – email@example.com – 01784 273 901
David Michaels, Amersham – firstname.lastname@example.org – 01494 728 021
David Kemp, High Wycombe – email@example.com – 01494 478 617