The Government has confirmed that the ancient common law remedy of distress is to be replaced with a new statutory procedure. The Commercial Rent Arrears Recovery (CRAR), which will be created by Part 3 of the Tribunals, Court and Enforcement Act 2007 will come into force on 6 April 2014.
The Existing Law
The common law remedy of distress allows a landlord to exercise self-help in relation to rent arrears. It provides landlords with the mechanics to recover rent arrears without going to Court by taking goods from the demised premises and either holding them until the arrears are paid or selling them. It is an especially useful remedy where a tenant has valuable goods on his premises. It’s currently a speedy process weighted largely in favour of landlords. But it is all about to change.
What are the Main Changes?
The new statutory remedy available under CRAR is more restrictive than common law distress, and will make it more cumbersome for landlords to recover rent arrears from tenants.
The key elements of CRAR are as follows:
- It is only available to landlords under written leases of commercial premises (if the property or any part of it is let as a dwelling, CRAR will not apply).
- It is available for basic rent with VAT and interest only. Other sums reserved as rent, e.g. service charges, insurance charges, rates etc., are not recoverable under CRAR.
- A 7 day notice of enforcement must be served upon the tenant prior to the bailiffs attending the premises. (From a landlord’s perspective any period of notice provides an opportunity for a tenant to remove the valuable goods which the landlord will want access to levy distress on).
- A further notice will need to be served prior to the goods being sold.
- Landlords will no longer be able to distrain themselves as only an enforcement agent can seize the tenant’s goods.
- A minimum level of arrears and period of time for the existence of arrears is required before exercising CRAR. The Government is to work with creditors and enforcement agencies to settle on the detail.
- CRAR is exercisable on any day of the week.
- The landlord will be able to recover rent owed by its tenant from an under-tenant and exercise CRAR against an under-tenant.
It is clear that CRAR will be more restrictive than distress but is likely to remain a useful remedy for landlords for rent arrears of commercial premises with valuable goods which are difficult to mobilise quickly.
Careful consideration should be given to the drafting of new commercial leases and updating leases to remove references to distress and to prepare for CRAR.
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