Commercial Rent Arrears Recovery (CRAR) Update
In an update to Dianne Adams' November 2013 article setting out the new process, we look at key points for landlords to note, as the common law of distress is finally abolished and CRAR kicks in on 6 April 2014.
Impact of the changes on commercial landlords
Generally, CRAR is seen by commercial landlords as unpopular - the main reasons are:
- The new 7 day notice requirement, removes the landlord's previous right to levy distress the day after rent fell due, and with it the advantage of surprise.
- That notice period is clear days - disregarding the days of notice and seizure, Sunday and public holidays - delaying landlord's action beyond 7 days.
- Previously, landlords, their own agents or bailiffs could exercise distress – now limited to authorised enforcement agents - the landlord's own notice cannot shorten the notice period.
- The remedy is only for rent arrears (plus VAT and interest thereon). Significantly service charge is excluded - so too are maintenance, repairs or insurance - even if reserved as rent.
- Unlike before, CRAR cannot apply to mixed use premises – for example pub premises with live-in accommodation.
- As the lease must be evidenced in writing, CRAR does not apply to tenancies at sufferance.
- Agents cannot now enter an open window/skylight – entry is only by usual means - ie a door.
- For tenants with multiple premises, the previous right to seize goods at any location is removed – can only enforce now at the demised premises.
But there are positives, which compensate the often more headline-grabbing negatives:
- Agents can now enter on Sunday - previously not permitted.
- The restriction on entering only during daylight hours is lifted. Entry can now be between 6am – 9pm, or importantly the tenant's normal business hours.
- If the debtor tries to transfer or assign goods, they are now bound (which did not previously apply to distress but only warrants of execution) giving the right to pursue goods at third party premises.
- Agents can now make repeat visits and seize goods, if they suspect initially removed goods have been returned to the premises (as notice of enforcement lasts for 12 months).
- Exempt goods – items necessary for a debtor's profession or business (tools, books, vehicles) are still exempt from seizure, but instead of an unlimited exemption are only protected up to the value of £1,350.
- Where agents secure a payment plan, the notice of enforcement lasts for 12 months following breach (rather than renewing every 12 months) - no breach no expiry.
- The legislation is simplified.
Practical steps for landlords
At the time of tenant's non-payment:
- Ensure the rent, VAT and interest on rent and the rent-period is accurately identified and calculated – prepare a clear and accurate schedule.
- Be ready to instruct agents as soon as quarter rent falls due, to serve notice the following day.
- Consider a dual approach – CRAR for pure rent recovery and court proceedings or statutory demand for service and other charges.
At lease drafting:
- In addition to Dianne's recommendations for landlords to require guarantors or seek higher rent deposits, practical drafting points include:
- For mixed use premises – use two separate leases rather than a mixed user clause; the commercial lease expressly prohibiting occupation as a dwelling.
- Ensure rent is separately identifiable from all other amounts due.
- Remove reference to clauses relating to distress.
CRAR may be an unwelcome change, but it is not all bad news for commercial landlords. Enforcement agents are generally prepared for the procedural changes, but we think an increase in court proceedings for forfeiture or money claims to properly protect landlord's interests are on the cards.