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Rent recovery to be transformed under new rules
From 6 April this year a new set of rules – Commercial Rent Arrears Recovery (CRAR) – will replace the former common law right of “distress” for rent.
The process of ‘distraining’ for rent allows landlords to instruct certificated bailiffs to pursue tenants for outstanding rent, and to seize goods and remove them for sale if payment is not made within a short period. This can put a landlord ahead of other creditors and can be a very effective remedy where a tenant has valuable goods on the premises.
The new law is to be introduced to address concerns by many in the industry that the system is weighted too much in favour of landlords. Whilst CRAR doesn’t take away a landlord’s right to seize goods for non-payment of rent, the new rules are much narrower.
The most important changes are:
- Previously the element of surprise was a big weapon in a bailiff’s armoury. Under the new rules, a minimum of seven clear days notice – in writing – must be given to the tenant by the enforcement agent before landlords can use the new CRAR process. This is a major change and may result in debtors simply moving any property that could be seized. This may also allow time for a tenant to begin an insolvency process, which will generally put a stop to enforcement action for non-payment of rent and leave a landlord queuing up for payment with other unsecured creditors.
- Distraint is currently available not just for rent but also other sums reserved as rent in a lease e.g. Service Charge and a contribution to the cost of the landlord’s insurance (insurance rent). However, under CRAR only ‘pure’ rent (plus VAT any interest) is recoverable.
- Under the rules of distress a bailiff can gain entry between sunrise and sunset on any day of the week other than Sunday. Under CRAR entry can be made between 6 am and 9 pm on any day of the week and during the tenant’s business hours if they are outside of these hours.
- CRAR only applies to leases of commercial property and can’t be used if any part of the demised property is residential (such as shops with a flat above).
- Under CRAR, the lease must be in writing.
- There has been clarification on those goods which are exempt from seizure. This includes goods which are necessary for use in the tenant’s business (up to the value of £1350).
- Walking Possession Agreements are replaced with Controlled Goods Agreements (CGAs) and allow tenants to retain goods on the premises until payment is made (like the old “impounding on the premises”). New rules prescribe the form and content of the CGAs.
Landlords of commercial property need to be aware of these changes to avoid breaking the law. They also need to consider requiring extra security for payment of rent before leases are granted and to ensure as far as possible that commercial and residential parts of property are separately let.