New Rules Relating to the Recovery of Rent Arrears on Commercial Property
15th November 2014
On the 6th April 2014, new rules came into force concerning a method of enforcement to recover rent arrears. Under the rules, rental arrears can be recovered by seizing tenant’s goods and selling them for an equivalent value to the arrears.
This new procedure, called the commercial rent arrears recovery (CRAR) procedure, only applies to rent arrears relating to commercial property, and is set out in the Tribunals, Courts and Enforcement Act 2007 and Taking Control of Goods Regulations 2013. This means that as of 6th April 2014, the common law right of distress was abolished and replaced by the CRAR procedure.
The CRAR procedure is much stricter than the old common law right of distress, and there are criteria to be met before the procedure can be used.
Although the procedure applies to all tenancies of commercial premises, the tenancy must be in writing. Furthermore, the procedure cannot apply where part of the premises are used for residential purposes, unless the use of the premises for the same are in breach of the terms of the lease or any superior lease
CRAR can only apply to the main rent, and VAT and interest on the same. It does not apply to sums in respect of rates, outgoings, services, repair, maintenance, insurance etc, even if the lease expresses them as ‘rent’.
The Tenant must be in arrears of rent before notice of enforcement is given, and the amount of arrears must be certain, or capable of being calculated with certainty. The net figure of unpaid rent must equal or exceed a minimum amount. Currently the law states that the minimum amount of net unpaid rent must be equal to 7 days rent. The Tenant must be in arrears of this net unpaid rent when the control of goods is taken as well as before the notice of enforcement is given.
The CRAR procedure can only be exercised by an enforcement agent, who exercises the procedure on behalf of a Landlord. The Landlord must instruct the agent in writing, and the instruction must contain certain information.
There is a strict notice procedure to follow if the Landlord intends to follow the CRAR procedure, which must be adhered to before the Landlord gives instructions to the enforcement agent. This notice must be given at least 7 clear days before the CRAR procedure is exercised and the notice must contain specific information and be served in the correct manner.
There are also rules about which goods the CRAR procedure can be exercised against, including those goods which are exempt, and rules as to inventories and the valuation of the goods.
By using the CRAR procedure, the Landlord waives the right to forfeiture provisions contained in the lease, which needs to be given some careful thought.
This article is a summary and intended to be for information purposes only; it is not intended to be used as any form of advice. Please do not hesitate to contact our Commercial Property Team if you have any enquiries arising from the article, wish for us to draft a lease, or provide advice on your rights and obligations under an existing lease.
Brindley Twist Tafft and James