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.
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