Monday, 21 April 2014

Landlord and Tenant Update: Recovering Rent Arrears - 22nd April 2014

Until now, if a commercial tenant fell behind on rent a landlord could, without warning, instruct bailiffs to attend the leased premises and seize assets belonging to the tenant to sell to recover rent arrears (known as distress or distraint).
Commercial Rent Arrears Recovery (CRAR) replaces the common law right of distress and came into force on 6 April 2014.

A major change: If a landlord wants to use CRAR he must give the tenant at least 7 clear (complete) days advance written notice of his intention to exercise CRAR, giving details of the rent arrears and how and where payment can be made. The advance notice is supposed to allow the tenant opportunity to seek legal advice or pay the rent (rather than allow time to dispose of assets!!).

Other key points to note:

CRAR will only apply to the rent (and any interest and VAT) payable under the lease e.g. services charges, insurance, rates will not be recoverable through CRAR.

CRAR cannot be exercised to collect rent on residential or mixed use premises. 

A minimum of 7 days’ rent must be owed before CRAR can be exercised.  If a tenant pays part of the rent arrears, it could prevent the landlord from exercising CRAR.

If a tenant is likely deliberately to remove or dispose of goods during the notice period, a landlord can apply to Court for an order that a shorter notice period can be given (although this will impose a considerable administrative and cost burden on the landlord).

Enforcement action may be taken on any day, including a Sunday, and may take place at any time between 6am and 9pm or other normal trading hours of the business.

Only Enforcement Agents (similar to a certificated bailiff) instructed to act on behalf of the landlord can enforce CRAR.

Only the tenant’s goods may be taken. Goods which are necessary for the tenant’s personal use or in connection with the tenant’s employment, business, trade, profession or education are exempt up to an aggregate value of £1350.  

Whilst a tenant struggling with its rent will welcome these changes, they will frustrate landlords and may make the recovery of arrears a more time consuming and costly process. A landlord may be inclined to seek rent deposits on a more regular basis, which they can dip into in the event of tenant breach without undue administration. Negotiating and agreeing such key commercial terms at the outset and having well drafted lease documentation is essential. 

 Michelle Oliver

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