A landlord’s and tenant’s guide to commercial rent arrears recovery (CRAR)

27 November 2014

For the better part of 250 years, landlords enjoyed the right to claim ‘distress’ for unpaid rent – meaning that they could seize (distrain) and sell their tenants’ goods to recoup the loss of earnings.

The Rent Act 1977 stripped this right from residential landlords1, but commercial landlords continued to be able to exercise distraint until April 2014, when distress laws were replaced with the commercial rent arrears recovery (CRAR) process2, 3.

So what exactly is CRAR?

Like most archaic UK legislation, distress law was unnecessarily complicated and, many felt, rather unfair. The CRAR rules that supersede them are intended to be simpler and more balanced, with a greater focus on tenants’ rights than their predecessors.

CRAR still allows a landlord to collect overdue rent without the need for a court order; however, it applies only to commercial tenancies, and the tenancy must be subject to a written lease. It can only be used to recover rent and any interest and/or VAT payable under the terms of the lease.

Landlords: enacting the CRAR procedure

Before claiming unpaid rent from a commercial tenant, you must remember the following:

  • The arrears must be at least seven days’ worth or more at the time the notice is served and at the time of enforcement
  • You do not have the right to seize your tenant’s goods yourself; they can only be seized by a certified enforcement agent

 Once you have found an authorised enforcement agent, you will need to fill out a Warrant of Control form to enable them to begin enforcement action. The enforcement agent will then take over the process, issuing a seven day notice to your tenant in the first instance.

If the rent remains unpaid at the time of enforcement, the agent will enter the property and take control of certain goods located thereon to be sold at public auction.

Tenants: your rights under CRAR

Firstly, you must remember that a notice of enforcement binds goods to remain on the property, meaning you cannot sell or remove them. You can, however, delay enforcement by applying to court for a delay of execution or a set aside.

It is possible to enter a controlled goods agreement in order to repay what you owe over time. Under such an agreement, the goods will remain on the premises, but your landlord’s enforcement agent will be able to remove them if you default on your agreed repayments.

If goods are taken, the enforcement agent must provide you with an inventory of everything seized as specified by section 33 of the Taking Control of Goods Regulations 2013.

If your lease has expired, your landlord can only use the CRAR process if:

  • the lease ended within the last six months;
  • the lease did not end by forfeiture;
  • the rent was owed by you at the time the lease ended;
  • you still possess some of the goods formerly located on the premises;
  • you occupy the goods under a commercial lease; and
  • your old landlords was, at the time the lease ended, entitled to immediate reversion

Being unable to pay debts, such as commercial rent, when they become due is a warning sign of insolvency. If this described your company’s situation, it is highly recommended that you seek insolvency or turnaround advice from a professional firm.

Written by Ben Gosling for www.commercialtrust.co.uk.

References

1. Rent Act 1977, s 147(1)

2. Tribunals, Courts and Enforcement Act 2007, s 71

3. The Taking Control of Goods Regulations 2013, SI 2013/1894