Commercial Rent Arrears Recovery – A New Regime

New rules for recovery of commercial rent arrears came into force on 6^th April 2014. The historical right of distress (allowing seizure of the tenant’s goods) has been abolished.

The new procedure of commercial rent arrears recovery (CRAR) allows a landlord to instruct an enforcement agent to take control of a tenant’s goods and sell them in order to recover an equivalent value to the arrears but the new procedures are much stricter and various conditions must be met. These include:

• CRAR only applies to leases of commercial premises and does not apply where part of the premises is used for residential purposes (e.g. where there is a shop with a flat above).
• For CRAR to apply, there must be a written lease. It will not therefore apply:
  1. Where a landlord has allowed a tenant into occupation on an informal/verbal basis.
  2. Where the arrangement is a licence rather than a tenancy.
  3. Where a tenant has been allowed to remain in occupation after the expiry of his lease (except in relation to rent due before the end of that lease subject to various conditions).

The new rules make it more important than ever for a landlord to ensure that no occupation by a tenant is allowed (or allowed to continue) without a proper written lease being in place.

• CRAR only applies to basic rent, VAT and interest, and not to other sums such as service charge and insurance which may be reserved as rent in the lease.

CRAR may only be exercised by certified enforcement agents, and the tenant must be given 7 days’ notice of the intention to use the CRAR rules. The practical difficulty for landlords is that this may give the tenant time to remove goods from the premises.

There is also detailed guidance about the type of goods which can be seized. Items of equipment necessary for the tenant’s personal use in his business (including computer equipment and vehicles) up to a value of £1,350 cannot be seized.

Once goods have been seized the tenant must be given an inventory of those goods and the goods must be valued within 7 days. The tenant must then be given a further 7 days’ notice before the goods can be sold and the goods must be sold at the best price that can be reasonably obtained.

There are separate rules applicable to rent arrears in respect of agricultural holdings.

All things considered, the new rules will make it much more difficult for a landlord to seize a tenant’s goods for rent arrears, and a landlord may need to look at other remedies instead.

Full details of the new rules are contained in The Taking Control of Goods Regulations 2013 which can be found here.

For more info please give Eleanor Rattay a call on 0116 281 6224.