Recovery of Commercial Rent Arrears

July 12, 2015

From April this year, the Landlord-friendly remedy of distress against a tenant in rent arrears was abolished and in its place is a new regime known as the Commercial Rent Arrears Recovery (“CRAR”). This affects commercial properties only and effectively puts the tenant in a much better position.

Landlords should note these key changes:

• CRAR is only available in relation to written leases of commercial property, so it will not be available to landlords of premises let as a dwelling. It will also be unavailable to landlords of mixed-use premises. Therefore, landlords should now consider letting mixed use premises under separate leases so that they can take advantage of the CRAR procedure in respect of the commercial property.
• CRAR can only be used to recover rent, VAT and interest.  It cannot be used to recover arrears for items such as insurance or service charges, even if these have been reserved as rent in the lease. CRAR can only be exercised if the outstanding sums exceed the minimum amount of 7 days’ rent.
• Perhaps one of the biggest changes to note is the requirement for 7 clear days’ notice of the intention to take enforcement for rent arrears to be sent to the tenant. This is in stark contrast to the remedy of distress, whereby no notice was required, thereby making it a quick and effective remedy for Landlords. Once the tenant receives the notice, he or she may apply to the court to set it aside or delay execution.
• It is also important to note that a landlord cannot personally exercise CRAR, it must be carried out by an enforcement agent. Instructions to the agent must be given in writing and once instructed, the enforcement agent is only permitted to take control of goods belonging to the tenant and not third parties. The enforcement agent will not be able to seize any goods being used by the tenant for its trade, business or personal use up to a certain amount.  
• Sale of any goods seized can only take place after at least 7 clear days have passed and 7 clear days’ notice of the sale has been given to the tenant. The only exception would be if the goods would otherwise become unsaleable or their value substantially reduced.

As you will appreciate, these changes in the legislation will appeal to tenants who are unable to keep up with their rent. For Landlords, it will make recovery of outstanding rent more difficult and costly in time and money. Landlords should now consider alternative methods of remedy available to them. If you find yourself in this kind of situation, please contact a member of our litigation department to discuss your options.