What does the commercial rent arrears recovery process actually mean for businesses and landlords?
From April 2014, the Commercial Rent Arrears Recovery (CRAR) process will replace the common law remedy of Distress, whereby landlords can seize tenants’ possessions and sell them to recover any rent arrears.
It will only be available in respect to unpaid rent, including VAT and interest, but no related costs such as service charges and insurance.
On top of this, landlords will not be able to use the remedy where the property or any part of it is being used for residential purposes, unless this is in breach of the lease terms.
Putting businesses on high alert
The new regulations are particularly relevant for businesses, given the costs which are associated with moving premises and the financial affect this can have.
The current option allows a landlord or a certified bailiff acting on their behalf to enter leased commercial property occupied by a defaulting tenant and remove goods.
Once these are sold on the landlord has effectively recovered any rent arrears without the need to initiate court proceedings.
Under the CRAR, landlords must provide the tenant with seven days notice of enforcement action, which is significant as previously no notice was required prior to any action.
It may also mean that the tenant can remove goods from the premises in that period to prevent them from being seized.
The processes involving bailiffs and the selling of goods are also set to change, as Controlled Goods Agreements will replace ‘walking possession’ where bailiffs seize goods but leave them on the premises.
Furthermore, there will be greater controls on the processes involved with selling such items.
Landlords will not be entitled to use CRAR against a tenant unless the outstanding amount is equal to or greater than seven days of rent arrears, greater than the current one day minimum.
One aspect that will work in a landlords favour is that CRAR can be exercised on any day of the week, unlike Distress which cannot be used on a Sunday or Bank Holiday.
The new proposals are designed to be fair on both parties, and will come in alongside new rulings relating to the behavior of bailiffs and the satisfying of debts.
By Phil Smith