Distressing Times
The Government has confirmed it is to restrict landlord's remedies for recovering commercial rent. It will press ahead with the abolition of distress and the introduction of Commercial Rent Arrears Recovery (CRAR) in April 2014.
This action is important as distress is a common-law, self-help remedy allowing landlords to recover arrears of rent by seizing a defaulting tenants' goods and selling them. Landlords do not have to give any notice or obtain permission from the Court, before exercising this remedy and therefore it allows them to recover rent arrears, ahead of other creditors in a quick and efficient manner, where the tenant has valuable goods on the premises. The new CRAR narrows the scope of landlords, as whilst it allows goods to be removed and sold, new checks and balances are introduced to protect tenants.
What Landlords need to know about CRAR
• It only applies to commercial premises and does not include mixed use premises. If part of the premises are actually used for residential purposes, except if part of the premises are used illegally for residential use, then it will be termed as residential.
• Tenancies have to be in writing.
• Only "basic" rent plus VAT and interest can be recovered. CRAR will not be available for service charges, insurance charges, rates etc.
• The landlord will be required to serve "notice of enforcement" on the tenant before sending in the Bailiffs and the notice period may be seven clear days.
• The landlord will only be able to recover rent arrears above a minimum level. Such level is currently unconfirmed.
• Only an enforcement agent authorised in writing by the landlord can seize the tenant's goods. In other words, landlord can no longer seize goods themselves.
• Enforcement under CRAR can take place any day of the week which is wider than the current remedy which cannot be exercised on Sundays or public holidays.
Preparation for this change in Legislation
Keep looking out for further comment on this proposed regulation and the matters which you need to consider are :
• A general management point is, you need to carefully consider what security should be taken to protect against rent arrears.
• Pay particular attention to the drafting of the permitted use clause in leases of mixed use premises and whether it would be better to lease the commercial and residential element separately.
• If the commercial premises are held on an inclusive rent, bear in mind that only "basic" rent can be recovered and it may be wise to state in any new lease how the inclusive rent has been calculated.
• For lease renewals etc, leases will have to be updated to remove references to distress for rent.
The best defence of all where tenants owe you money is to not let them get that far in the first place!
For further information please contact Jackie Crisp at Roche.
March 2013