New commercial rent arrears recovery procedure

The common law right of distress can be traced all the way back to the 13th century. It has been tweaked by the courts and statute over time, but on 6 April 2014 this ancient right will be abolished and replaced with a new, more tenant-friendly regime of commercial rent arrears recovery (“CRAR”).

Distress allowed a landlord to instruct a bailiff to enter a property, seize a tenant’s goods and sell them to settle rent arrears. CRAR ultimately achieves almost the same thing, however:

  1. There must be a written lease – distress had no such requirement;
  2. The lease must be of only commercial premises (not mixed use unless the residential use is in breach of the lease) – distress could be exercised at mixed use premises;
  3. At least 7 days’ rent must be overdue – distress had no minimum amount;
  4. It is only for principal rent and any VAT and interest on it, not service charge, insurance rent or other sums (even if these are “reserved” as rent) – distress could be used to recover these too.

The basic CRAR procedure is as follows:

  1. Only an enforcement agent, instructed by the landlord in writing, may exercise CRAR;
  2. The landlord must give the tenant 7 clear days’ notice (excluding Sundays and Bank Holidays) in writing of the exercise, to be properly served by the agent – distress required no notice so the bailiff could just turn up at the tenant’s premises;
  3. The agent may enter the premises, with reasonable force through a door or usual means or entry, on any day between 6am and 9pm or during other tenant business hours – distress was permitted between sunrise and sunset, Monday to Saturday;
  4. The agent may secure goods, remove them to be secured elsewhere or enter into a controlled goods agreement with the tenant under which the tenant agrees not to sell the goods. There are conditions and exemptions for what goods can be covered;
  5. An inventory must be provided to the tenant as soon as reasonably possible and a valuation carried out within 7 clear days;
  6. 7 clear days’ notice of sale of the goods must be given to the tenant and they must be sold at public auction (including online) unless the court permits otherwise – distress allowed any form of sale;
  7. The proceeds of sale are then used to pay the tenant’s debts and the costs permitted by statute;
  8. The tenant may pay its debts any time before sale of the goods, in which case the CRAR procedure must cease.

Whilst landlords may review their security requirements in light of the new regime and potentially request greater rent deposits, market conditions will hopefully prevent this. Commercial tenants should be pleased about the new hoops landlords must jump through to get hold of their goods.

Charles Hylton-Potts