Commercial Rent Arrears Recovery – a Changing Landscape

With effect from 6 April 2014 a new system for recovering rent arrears is likely to come into force covering commercial premises and agricultural holdings. Commercial Rent Arrears Recovery (CRAR) applies only where there is a written tenancy agreement. It covers agricultural holdings let under the Agricultural Holdings Act 1986  and the Agricultural Tenancies Act 1995. It will become the process by which a landlord recovers unpaid rent, VAT and interest, abolishing the remedy of distress for tenancies where there is a written agreement. CRAR does not apply to licences. Although it is anticipated that these reforms will come into effect in April, the Commencement Order to bring them into effect has not yet been made.

The key differences with the common law remedy of distress are that under CRAR:

• written notice must be served on the tenant giving him seven clear days notice of a certified enforcement agent attending to seize goods (a court may order a shorter period if it is satisfied that the debtor may move the items);
• goods must be sold at public auction and seven clear days notice is given to the tenant of the date of the auction;
• CRAR cannot be used to recover service charges and insurance rent even if these have been reserved as rent in the tenancy agreement;
• the enforcement agent can only seize the goods of the debtor and any personal items or tools of the trade are exempt up to a value of £1,350; and
• at least seven days rent must be outstanding.

In relation to an agricultural holding, there are two relevant criteria. CRAR cannot be used to recover rent which became due more than one year before the notice of enforcement was given. Further, any compensation due to the tenant can be deducted when calculating the net unpaid rent, provided the amount of compensation has been ascertained.

Under the Law of Distress Amendment Act 1908 it was always possible for landlords to recover rent direct from a sub-tenant. Although this legislation has been repealed, the new provisions under the Tribunals, Courts and Enforcement Act 2007 preserve the landlord’s right to recover rent from the sub-tenant but under a different procedure. The landlord can take action against the sub-tenant if he is in the position to exercise CRAR against the tenant. The landlord can serve a notice on the sub-tenant giving him 14 clear days to pay his rent direct to the superior landlord.

Although the common law remedy of distress was an archaic remedy, with complex rules and procedures,  for some landlords it proved a quick and efficient remedy to recover sums due. They benefitted from being able to instruct a certificated bailiff to attend the premises within 24 hours of the rent falling into arrears. It is possible that the notice system introduced by CRAR will prompt payment by some tenants without the need to attend the premises, but for others it will make the new form of remedy open to abuse and leave some landlords with no option but to forfeit the lease.

For further information contact Vivienne Williams on 0117 906 9302 or email vivienne.williams@michelmores.com