The remedies available to commercial landlords have been restricted with the implementation of a statutory process for the recovery of rent arrears (CRAR) effective 6th April 2014. The ancient common law right of distress for rent is to be abolished and replaced by the modified statutory procedure.
Distress was a self-help remedy for landlords of commercial premises whereby a certificated bailiff could enter premises, seize the tenant’s goods (subject to certain limitations) and sell those to satisfy rent arrears. The procedure was subject to criticism due to the perception that it:
- gave landlords priority over other creditors,
- was inconsistent with human rights,
- afforded the tenant little chance to object, and
- exposed third party goods.
Six Major Changes
The commercial rent arrears recovery procedure has many similarities to the common law regime but also some important differences:
- It is only available for pure rent arrears, not therefore service charges or insurance costs.
- It applies to commercial premises only, so not to those in mixed use held under the same lease.
- The lease must be evidenced in writing but includes tenancies at will, statutory extensions and those holding over at the end of a contractual term.
- An enforcement notice must be served in advance of exercising these rights. Seven clear day’s notice (excluding Sundays and bank holidays) must be given to the tenant by a certified enforcement agent. This is by far the most contentious aspect of the reforms. It removes the element of surprise. The tenant will have an opportunity to remove the goods during the notice period. If there is a significant risk of the tenant taking such steps, a landlord can ask the Court to reduce the notice period.
- The minimum amount due must exceed seven day’s rent arrears.
- As soon as notice is given, the tenant’s goods can only be dealt with subject to the landlord’s rights. If the tenant chooses nevertheless to deal with the goods, there are no longer any penal sanctions.
The superior landlord still has a right to serve notice on any subtenant to require rents to be paid to the superior landlord rather than the immediate landlord. 14 day’s notice must now be given of this requirement.
Notice Undermines Effectiveness
The requirement for an enforcement notice is widely regarded as undermining the effectiveness of the remedy. However, in practice many tenants may not have the facilities to remove the goods during the intervening period. If the notice is given personally, the enforcement agent could have the opportunity to make a note of what is at the premises at that time.
This new regime may force landlords to rely on alternative recovery options such as Rent Deposit Deeds, Guarantors or Statutory Demands. They may therefore want to insist on a security deposit or guarantor given the limitation of the CRAR scheme.
Disclaimer: While we do all that is possible in terms of ensuring its accuracy, this blog contains general information only. Nothing in these pages constitutes legal advice. You need to consult a suitably qualified lawyer from the firm on any specific legal problem or matter.
[Originally published in February 2014. Updated in April 2014.]