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Commercial rent arrears recovery

Historically, a landlord had the common law right of distrain available when a tenant fell into arrears of rent. This was essentially the landlord’s ability to enter leased premises, without notice, to seize the tenant’s possessions and sell them to set off against rent arrears.

However, the Tribunals, Courts and Enforcement Act 2007 abolished that right and replaced it with a new statutory regime known as Commercial Rent Arrears Recovery (‘CRAR’). CRAR came into force on 6 April 2014, pursuant to the Taking Control of Goods Regulations 2013. This article is intended to give you a brief outline on the key provisions of CRAR.

Key Provisions

Lease must be in writing

The lease must be evidenced in writing but it can be both legal and equitable and includes tenancies at will. CRAR does not appear to apply to licences to occupy and expressly does not apply to tenancies at sufferance (this arises where a tenant continues to occupy the property after its lease has expired, but before the landlord has demanded that the tenant leave).

The property must be commercial premises

CRAR only applies to commercial premise and a restrictive approach is taken to this definition by the legislation. A property will not be considered to be commercial if any part of it is occupied as a dwelling. The only exception to this is where the occupation is in breach of the terms of the lease.

The difficulty for landlords arises where a combined use premises has been let to a tenant (for example a shop with a flat above). If the tenant holds the whole premises under a single lease, CRAR will not be available. It is prudent for landlords to consider renting such premises on separate commercial and residential leases to preserve the right to use CRAR.

CRAR only applies to rent

Only rent, VAT and interest payable in respect of rent arrears can be recovered. Any other sums, including those reserved as rent, such as service charges, insurance, rates and repairs, cannot be recovered.

CRAR is only available to a landlord where the tenant is in arrears of rent of at least 7 days. The figure used for the purposes of calculating outstanding rent cannot include interest or VAT, and must take into account any entitlement to set-off that the tenant may have in considering whether the minimum threshold has been reached.

The unpaid rent must exceed the minimum threshold both at the time of the service of the notice, and at the date of the first enforcement.

Notice to be given

A notice in writing in the prescribed form must be given to the tenant 7 clear days in advance of enforcement. Clear days are specifically set out so as not to include Sundays and various Bank holidays. Once the notice has been given the landlord has 12 months within which to act upon the notice by way of enforcement.

The landlord can apply to the Court for a shorter notice period and the Court will grant any such application if it is satisfied that, amongst other things, steps are likely to be taken by the tenant to dispose of its goods.

Other important provisions include the obligation on the enforcement agent to wait 7 clear days before selling the goods, unless they are likely to diminish in value or become unsaleable, and the Court’s powers to intervene and set aside the notice.

There is also the ability to serve a notice on a sub-tenant who is in occupation of the premises, requiring them to pay the rent owed. If the sub-tenant does not pay the amounts claimed, the landlord may exercise CRAR against the sub-tenant.

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