Member Article

On 6 April 2014, the historic remedy of distress ceased to exist. The tool that landlords have used for centuries has been replaced by the Commercial Rent Arrears Recovery (‘CRAR’) regime.

Tenants have welcomed this development as CRAR prevents bailiffs from simply turning up unannounced at the tenant’s address in order to seize goods. Landlords on the other hand are now faced with a more complex process and the loss of the element of surprise.

How do you apply CRAR?

There are a number of fundamental differences between the CRAR regime and the remedy of distress. We set out below the key points of which landlords wishing to apply CRAR should be aware:

CRAR can only be applied to commercial premises.  

CRAR will not apply if the premises under the lease comprise of any area let or occupied for residential purposes. This will exclude properties such as pubs and shops with management accommodation above or overriding leases with elements of residential from the regime.

The Landlord can only recover rent paid for “possession and use” of the premises and VAT and interest paid on that rent.

Service charge, insurance, rates and other sums are excluded even if they are reserved as rent under the lease. Where rents are inclusive of other sums or based on turnover, it will only be the net or base rent to which CRAR will apply.

The landlord is now required to serve notice on the tenant seven clear days before goods can be seized.

The requirement to serve notice on a tenant prior to seizing goods is perhaps the fundamental change being introduced under the new CRAR regime. The notice can be served by post, fax or electronic means, by hand or personal delivery to the tenant or to its registered office. The notice period does not include Sundays, bank holidays or the day of service so is in fact a longer period than a week.

CRAR can be enforced on any day of the week

Enforcement can take place on Sundays and bank holidays between the hours of 6am and 9pm or if the premises are open longer for business, in which case entry must be within business hours.

Goods that can be seized are limited.

The goods must be on the premises, belong to the tenant and not be in the exempt category. If landlord fears the tenant had disposed of or relocated the goods, the landlord can bring a claim against the tenant for interfering with controlled goods but only after the 7 day notice period has elapsed.

Enforcement officers are now required by CRAR to obtain a valuation of the goods under their control before taking steps to sell the goods.
The tenant must also be given the opportunity to obtain an independent valuation.

To complicate matters further, landlords seeking to apply CRAR must also ensure that they do not breach the following conditions:

1. The tenant must be in arrears of rent before the notice of enforcement is served;
2. The amount of the arrears must be certain or capable of being calculated with certainty;
3. The "net unpaid rent" must equal or exceed the minimum amount prescribed in the legislation (currently set at an amount equal to seven days’ rent); and
4. The tenant must be in arrears of the net unpaid rent when control of the goods is taken.

 Commentary

There are a number of key disadvantages to CRAR when compared with the powers that landlords enjoyed under the historic remedy of distress. In particular, the requirement to give a tenant warning before enforcement means that the advantage of surprise is lost. For some tenants the threat of the bailiffs has always been enough to ensure that the landlord is a creditor they cannot ignore.  Whether a CRAR notice will have the same impact remains to be seen.

In light of the additional hurdles that landlords will have to overcome following the implementation of CRAR, we recommend that landlords seek additional security from tenants at an early stage, for example by insisting on rent deposits and guarantees.

For discussion as to the alternatives to CRAR, why not watch our recent webinar https://vimeo.com/89604783 or alternatively for advice on CRAR or any related issue please contact Katie Logan at [email protected].