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.
CRAR can still be used during the Coronavirus pandemic as a means of collecting rent as it has not been stopped by the 2020 Coronavirus Act, whilst repossession by forfeiture has.
NOTE: From June 25th 2020, landlords are able to issue petitions and take control of goods for any debts pre-lockdown (25th March) providing that the enforcement notice was served. The threshold before CRAR can be exercised has increased from 90 days to 189 days’ rent arrears for enforcement notices given between 24th June and 30 September 2020
It still stands (since April 23rd) that landlords are unable to forfeit, serve petitions or statutory demands if the company has been forced to close due to the pandemic. This has been extended to September 2020
Ultimately, the current CRAR moratorium ends after 90 days of non-payment of commercial rent has been experienced unless no notice has been given. This means at the next rent quarter day, landlords are able to re-start taking action against commercial tenants for non-payments in the March quarter as long as a notice has already been served.
Note: There appears to be some confusion in legal circles over the exact operation of this moratorium so we strongly advise speaking to your solicitor for advice before taking action.
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.
Categories: Winding up petition