Commercial Rent Arrears Recovery – Changes Ahead

The current legislation surrounding the recovery of commercial rent arrears is changing on 6 April 2014 with the introduction of a new statutory regime.  The new regime may come as a welcome relief for some retailers although the extent to which it will help financially distressed retailers is yet to be seen.

‘CRAR’ is the abbreviation given to the new Commercial Rent Arrears procedure.  Under CRAR, landlords will see significant changes to the methods of recovering arrears and significantly, landlords will no longer be able to exercise their archaic right to distrain against a tenant’s goods.

Under the current rules, tenants are at risk of bailiffs turning up to distrain against goods without prior notice.  Whilst this can enable the landlord to recover arrears of rent and other sums which have fallen due, it often leaves tenants unable to trade and accordingly can be the precursor to administration or other financial difficulty.

Summary of Key Changes

• CRAR is only exercisable in respect of rent, VAT and interest regardless of whether any other sums are reserved as ‘rent’ under the lease (such as service charge and insurance rent)
• The sums owed by the tenant must be more than 7 days’ rent.
• CRAR only applies in respect of commercial premises occupied under a written lease.  It cannot be used where part of the premises is occupied as a dwelling unless this is in breach of the lease.
• Landlords must provide 7 clear days’ notice of their intention to implement CRAR (although the 7 day time period can be reduced by the court if there is evidence that the tenant will put goods out of reach during those 7 days).
• A certified enforcement officer must be used to implement CRAR and can only recover goods belonging to the tenant.  Unlike under the current rules relating to distress where third party goods could be distrained upon in certain circumstances, the enforcement officer is only able to recover goods belonging to the tenant.
• There are further restrictions on what goods can be recovered which include a restriction on the value of goods where this needsto be in line with the arrears owed together with costs.
• Once goods have been recovered from the tenant, the landlord must then wait a further 7 days before the goods can be sold.

Whilst the 7 days advance written notice of the landlord’s intention to implement CRAR may not be long enough for tenants to pay the amounts owed, it does however provide tenants with a window of opportunity to seek advice on the options available to them which may include restructuring. Directors of tenant companies should use this time frame to seek professional advice in order to minimise the risk of breach of duty claims by creditors.

For more information about any of the issues raised in this article, please contact Katherine Breckin at katherine.breckin@michelmores.com.