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Commercial Rent Arrears – All Change Commercial Rent Arrears – All Change

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May 14

Commercial Rent Arrears – All Change

Written by Matthew Hill
Head of Dispute Resolution

DDI: 01423 724611
M: 07590 021148
E: matthew.hill@raworths.co.uk

On 6 April 2014 landlords of commercial premises lost one of the most important and flexible weapons in their armoury. Prior to this change, the common law remedy of distress (often described as distraint) allowed landlords to exercise self-help when collecting rent arrears from a defaulting tenant by taking goods from the let premises and either holding them until the arrears had been settled or selling them to cover the debt.

Crucially, collecting through distraint did not require landlords to go to court which usually made it a fast and effective process. It could be said that this pretty draconian right was a hangover from a more landlord-friendly time and that reform seemed inevitable. However, many of our commercial landlord clients will mourn its loss.

Replacing distraint is a new, more restrictive, statutory regime called ‘CRAR’, or Commercial Rent Arrears Recovery which was introduced under the Tribunals, Courts and Enforcement Act 2007.

It is important for both commercial landlords and tenants to understand this change and the implications this could have for them. Main changes include:

  • CRAR is only available to landlords of commercial premises where a written lease is in place. Importantly, no part of the premises must be let as a dwelling.
  • The landlord will no longer have the advantage of surprise. Under CRAR at least 7 days’ notice of the enforcement must be given prior to the property being attended. This presents the biggest challenge to landlords under the new system as many tenants, if they can, will move any goods of value to avoid them being taken.
  • Unlike distraint, which could be excised to recover all payments reserved as rent under the lease, which could also cover service charges, VAT and insurance premiums, CRAR can only be used to recover the basic rent.
  • Once goods have been taken, a further notice must be served on the tenant prior to them being sold. The idea behind this is to give the tenant a last opportunity to settle the debt.
  • Unlike with distress, landlords will no longer be able to act for themselves and will need to instruct an enforcement agent to use the CRAR process.

Even at this early stage it seem clear that CRAR is going to be significantly less useful to landlords than the old distraint process, largely thanks to the significant prior notice that now has to be given to tenants. Has the need to protect the human rights of the tenants gone too far? No doubt your view on that is likely to depend on whether you are a landlord or a tenant.

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