“CRAR” – The New Regime for Recovery of Commercial Rent Arrears
May 27, 2014
On 6 April 2014 a new regime came into play governing the law in relation to the self-help remedy of recovering arrears of rent on commercial property. Out went the old system of “distress” and in came the new (and, to a large degree, more regulated and regimented) system introduced by the Tribunals Courts and Enforcement Act 2007 (supplemented by the Taking Control of Goods Regulations 2013). The new regime does not replace the traditional remedies of forfeiture and suing through the Courts, but rather replaces the old quick fix option of taking and selling the tenant’s goods to cover arrears.
The Commercial Rent Arrears Recovery (CRAR) process can only apply where there is a written lease, whereas previously all that had to exist was a Landlord and tenant relationship. It is only the principal rent (together with any VAT and interest due on the rent) which can be recovered – the old system allowed for recovery of any sums due under the tenancy which were reserved as rent. CRAR cannot therefore be used to recover sums due in respect of rates, council tax, service charges and insurance liability. Moreover, where the lease prescribes an all-inclusive rent, (i.e. a charge for use and occupation of the premises together with such elements as business rates and other expenses) CRAR dictates that only such sums as are reasonably attributable to the use and occupation of the premises can be recovered. There is a statutory minimum threshold of rent due before one can utilise the procedure, presently set at 7 days’ rent.
Whereas previously distraint could be exercised at premises which were of mixed use – comprising commercial and residential elements, the CRAR process applies only to premises in commercial use.
In terms of who on the ground undertakes the physical act of seizure and sale of goods, CRAR must be exercised by an “Enforcement Agent” – the new term for a Certified Bailiff. There are now tighter controls overarching the seizure and sales process, most notably the requirement of the Enforcement Agent to give notice to the debtor prior to exercising recovery – the Agent must give at least seven clear days’ notice before exercising CRAR. The 2013 regulations prescribed the form and the contents of such notice. Once notice has been served, entry to the premises can only be effected between 6am and 9pm on any day of the week (or during the tenant’s business hours if they fall outside these times) whereas the former regime allowed a Bailiff to enter between sunrise and sunset. The Enforcement Agent has the power to use reasonable force to gain entry to the premises and can take control of goods by either securing them on the premises or removing them and securing them at another location. Alternatively, the Agent can enter into what is known as a “Controlled Goods Agreement” with the tenant (this is similar to the “walking possession” process under the old law of distress) whereby the tenant acknowledges control of the goods and agrees not to remove or dispose of them until the debts is paid.
As to the type of goods over which the Enforcement Agent can exercise CRAR, these are specifically defined in the 2007 Act. Broadly, the goods must be such that they belong to the tenant and are not “exempt goods” (for example equipment for the tenant’s personal use in his employment, trade, business, profession up to the limit of £1,350). Once taken control of, the goods must be sold at public auction (or another means of sale as ordered by the Court) but only after the tenant has been given at least 7 clear days’ notice. Under the old law of distraint, the goods were permitted to be sold after 5 days and there was no requirement as to the mode of sale.
By and large, it is perhaps fair to say that the new regime does overlay a much more regulated and regimented procedure as compared to the old self-help remedy of distraint. Indeed, this has been mirrored in the non-commercial system of recovery of debts by enforcement action. Whilst this may lessen flexibility and reduce the speed of action, the system does still offer commercial landlords an effective alternative for recovery of arrears – particularly in these days when forfeiture could serve as a boon for the tenant and an already over-burdened Court system makes suing for the arrears a somewhat lengthy and onerous process.
It should of course be remembered that exercising the CRAR process does constitute an acknowledgement by the landlord that there is an ongoing Landlord and Tenant relationship and does therefore serve as waiver of the breach and frustrate any contemplated forfeiture action.
CRAR is a useful process, tactically employed. But faced with an arrears situation, a commercial Landlord would do well to momentarily step back, take professional advice and weight up all the options before going forward.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.