New legislation to make rent arrears recovery more difficult for commerical landlords

On 6 April this year, Distress for Rent was replaced with Commercial Rent Arrears Recovery, CRAR, as the correct legal process for landlords wishing to recover rent arrears by seizing goods from the tenants. The new CRAR will still allow landlords of commercial premises the right to recover rent arrears through the seizure of goods, although the two systems are very different. The type of goods that may be seized has been reduced and the right may only be exercised after a more protracted procedure.

Perhaps the most significant change is that a landlord now has to give a tenant at least seven clear days’ notice before the landlord’s enforcement agent can attend the premises to exercise CRAR.

What else has changed?

• Premises – Landlords used to be able to levy distress at premises which comprised a mixture of residential and commercial use. CRAR may only be exercised over goods at “commercial premises” or over vehicles belonging to the tenant on the public highway.
• Lease – Distress required a relationship of landlord and tenant to exist without the need for a written lease. For CRAR to apply, a tenancy must be evidenced in writing.
• Type of arrears – The CRAR procedure restricts the recovery of arrears to “basic rent” only (which includes interest and VAT), unlike the old distress regime which enabled landlords to recover any sums due under the lease that were defined as “rent” (e.g. service charge, insurance payments and rates).
• Time – Under the old regime, landlords or bailiffs could enter the leased premises on any day except Sunday and at any time between sunrise and sunset. Regulations now provide for CRAR to be exercised basically between 6am and 9pm on any day of the week.
• Who can seize – CRAR can only be carried out by an authorised “enforcement agent” which term now replaces “certificated bailiffs”. Landlords will therefore no longer be able to levy distress themselves. An enforcement agent cannot use force to enter premises or to gain access to a vehicle for the first time, without first obtaining a warrant permitting him to do so.
• Whose goods? – CRAR can only be exercised over goods in which the tenant has an interest. A landlord is no longer able to seize any goods found on the premises. Consequently goods owned by a third party should not now be taken in exercise of CRAR.
• Keeping goods on the premises – Walking possession agreements have been replaced by “controlled goods agreements”. By signing the agreement, the tenant is permitted to keep the goods in his possession but undertakes not to remove or dispose of them before the debt is paid.

How will CRAR affect tenants and landlords?

These changes are likely to be welcomed by tenants having difficulties keeping up with rent payments. For landlords it will make the recovery of arrears a more time consuming and costly process. They will have to consider the other options available to them, including serving a statutory demand on the tenant, bringing court proceedings to recover the debt or taking steps to forfeit the lease. All of these will normally be more expensive than the remedy of distress would have been. It is more likely that a landlord will seek some other security such as a guarantor or a rent deposit before entering into a tenancy, to try and protect their position.

Elaine Wilcox, Insolvency Consultant