Commercial Property Rent Arrears

The ancient common law right of a landlord to distrain against a defaulting tenant’s goods is about to disappear. There are now regulations implementing the long awaited reforms that were originally included in the Tribunals Courts and Enforcement Act 2007. From 6 April 2014 the right to distrain for arrears of rent is abolished. This will be replaced by a new procedure known as Commercial Rent Arrears Recovery, otherwise known as CRAR.

The new procedure Briefly, the steps which a landlord of commercial premises with a written lease will have to take will be as follows:-

1.The landlord must give a tenant at least 7 clear days’ notice in writing of its intention to use CRAR. Inevitably, advance notice will warn tenants who may well remove valuable goods to evade enforcement.

2.The new right only attaches to the principal rent debt , VAT and interest. The inevitable consequence of this is that tenants will seek to pay the principal debt in priority to other sums due such as insurance or service charges which are excluded even if reserved as rent.

3.The minimum amount of unpaid rent for which CRAR can be exercised is 7 days’ worth. This is calculated after deducting any set off that the tenant might be entitled to claim in law or equity. This may create an uncertainty as to whether the correct level of outstanding rent has been achieved and may result in challenges by tenants.

4.The procedure whereby a landlord can serve a Section 6 Notice on his defaulting tenant’s sub-tenant will remain under CRAR but the Notice will only take effect 14 clear days after it has been served.

5.CRAR may only be enforced by an authorised enforcement agent and does not apply to premises which are partly residential if let under the same lease e.g. if there is a flat above a shop.