Published Winter 2013 / 2014
There are a number of options available to a landlord of commercial premises if their tenant fails to pay the rent.
One of the options is to exercise the common law right of distress. This is often a fast and cost effective method of recovering rent arrears because bailiffs can usually be instructed to attend the premises and seize goods to the value of the arrears within 24 hours.
Distress can only be exercised in relation to arrears of rent. Most modern leases will state that service charge, insurance, VAT and interest are reserved as rent and, if this is the case, the landlord can exercise distress to recover the arrears of these payments. If the lease is silent on whether these payments are reserved as rent then the landlord will only be able to exercise distress for basic rent arrears.
On 6 April 2014 the commercial rent arrears recovery scheme (“CRAR”) will come into force and the remedy of distress will be abolished. The main changes are as follows:-
- CRAR can only be used if the outstanding sums (less interest and VAT and any set-off the tenant is entitled to make) exceeds the minimum amount of 7 days’ rent.
- The landlord must now give their tenant 7 clear days’ written notice (excluding Sundays, Christmas Day, Good Friday and Bank Holidays) together with information such as the name and address of the landlord and the nature of the debt, before allowing an enforcement officer to seize goods.
- The enforcement officer can only take control of goods belonging to the debtor. Goods necessary for the debtor’s personal use or in connection with employment or their business are exempt up to an aggregate value of £1,350.
- The landlord will not be able to use the CRAR process to recover service charges, insurance rent or other sums reserved as rent under the lease. CRAR can only be used to recover the principle rent together with VAT and interest; and
- CRAR only applies to commercial premises where there is a written lease and does not apply to mixed use premises.
Whilst the changes in the legislation are likely to be welcomed by tenants, landlords are likely to find that CRAR will not provide them with such a quick and cost effective method of recovering commercial rent arrears. In addition, given that tenants will be provided with a written notice prior to the enforcement officer seizing the goods, tenants may well remove valuable goods to evade enforcement.