Recovering Commercial Rent Arrears

Rent Arrears:

From 6th April 2014, the ancient remedy of distress for rent, available to commercial landlords, will be removed and replaced by CRAR – Commercial Rent Arrears Recovery.

When commercial tenants get into arrears with their rent, the landlord may now use CRAR to recover any overdue rent money.

Here, David Asker, an authorised High Court Enforcement Officer and our Director of Corporate Governance at The Sheriffs’ Office talks about Commercial Property rent arrears and gives some feed-back from a recent Webinar they held.

This article applies primarily to English law. Although tenancy laws are similar in other jurisdictions, there may be significant differences. Always seek professional advice before making or not making important decisions.

With CRAR the landlord does not need to obtain a court order. He may simply instruct a certificated enforcement agent (previously called a certificated bailiff) to enter the premises and take control of goods in order to sell them to recover the rent. It is a very fast and efficient process – the landlord can instruct in the morning and the enforcement agent can attend the same day.

CRAR only applies to rent on leased premises. If the landlord wishes to recover items such as service or maintenance charges under the banner of rent in the lease, he will need to obtain a county court judgment, and have this enforced later if still unpaid.

What is the process?

The landlord instructs the certificated enforcement agent to attend the premises and levy. The agent must show the tenant his/her certificate and leave a memorandum detailing the inventory of what has been seized and the associated authorised fees, charges and expenses.

As with the vast majority of enforcement cases, we find at The Sheriffs Office that the mere attendance of the certificated enforcement agent is enough to persuade the tenant to pay all arrears. It is only on rare occasions that goods are seized.

CRAR – Commercial Rent Arrears Recovery

CRAR replaced the common law remedy of distress for rent when part 3 of the Tribunals, Courts and Enforcement Act 2007 came into force on 6th April 2014.

Can the EA attend on the day that notice is given, and then there are 7 days before removal of assets, or do they get 7 days’ notice, then the EA attends and takes an inventory?

If the landlord wants to use CRAR, he must give the tenant 7 days’ notice of enforcement after the rent becomes overdue. The rent must still be unpaid at the time the notice is served, as well as immediately before any goods are seized. Once notice has been served, the tenant may apply to court for a set aside or delay of execution. The notice must be served, either by post, hand, fax and electronic communications such as email. The landlord can tell sub tenants to pay him their rent directly, but must give them at least 14 days’ notice.

Can court action be taken for accrued rent arrears after common law re-entry using forfeiture?

Yes, outstanding amounts that are due can still be claimed and this might include rent due or charges for dilapidations and covering associated repair works. However, you will need to know where the tenant has moved and it is worth checking that there are sufficient assets before starting court action.

Does forfeiture still apply where the commercial lease is not written i.e. a company occupies without a written lease?

There needs to be a clause to permit forfeiture within the lease. If there is no written lease in place, you will need to take legal advice to see what options are available.

On control of goods how do you keep the costs down when the goods value is less than the cost of the seizure?

If possible, it is worth checking to see what goods are in place, as if the value of goods is lower than the cost of taking control, then of course it would not be a sound financial decision to move forward with the enforcement and be out of pocket.

Has CRAR resulted in more tenants doing a runner with goods as opposed to the old bailiff laws where goods could be distrained upon entry without notice?

When the tenant is in business premises, them “doing a runner” is unlikely, but if the tenant does abscond, then they would have been likely to do so anyway, with or without the seven-day notice.

You forfeit the lease, take control of the property, can you then take control of goods left on site by the tenant before they remove them?

If you have a County Court judgement (CCJ) for non-rent, for example service charges, and have instructed us to enforce under a writ of control, then we may take control of goods left behind to sell to satisfy the debt. If this is not the case, and they are simply goods left behind, then a tort notice is given under the Torts (Interference with Goods) Act 1977.

The goods still remain the property of the tenant (referred to as the bailor) and the landlord (referred to as an involuntary bailee) has an obligation to take care of the goods and make reasonable attempts to trace the tenant to return the goods.

Under S12 of the Torts Act, if the bailor breaks an arrangement to take delivery of the goods, or the landlord/bailee is unable to trace the former tenant/bailor, then the bailee is permitted to sell the goods, provided he gives notice and has taken reasonable steps to trace the bailor.

Who will be responsible for business rates, following forfeiture and/or peaceable re-entry?

The landlord becomes responsible for business rates.

If service charges and insurance charges are defined as ‘rent’ under the lease can these be recovered?

Only rent, VAT and interest can be recovered under CRAR. For service charges and insurance, you will need to obtain a County Court judgement, which can then be enforced under a writ of control.

David Asker is an authorised High Court Enforcement Officer and our Director of Corporate Governance for The Sheriffs’ Office – https://thesheriffsoffice.com

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