CRAR: how to recover rent from a commercial tenant

As discussed in last month’s article, How to evict a commercial tenant, non-payment of rent is one of the more common reasons for forfeiting a lease. However, exercising peaceable re-entry or getting a possession order from a county court does not guarantee the return of the outstanding rent.

Until 6 April 2014, commercial landlords had the right to claim ‘distress’ on goods within the property of a tenant in arrears. This right to seize goods belonging to the tenant and either hold them until the rent is repaid or sell them was enshrined in the Distress for Rent Act 1737.

Like much of our old-fashioned legislation, the laws surrounding distress were unclear, spread across dozens of statutes and worded in archaic English. A number of statutory instruments repealing parts the Act have been introduced over the intervening centuries, with the Tribunals Courts and Enforcement Act 2007 finally abolishing the right to distrain and sell goods altogether 1.

The new process for commercial rent arrears recovery (CRAR) was outlined in Part 3 of the 2007 Act, which after years of deliberation was brought into force by The Taking of Goods Regulations 2013.

The commercial rent arrears recovery process

The new procedures are intended to be simpler and more transparent, and redress the balance of rights between landlord and tenant.

Finance rates for commercial mortgages are calculated in part on expected yield so resolving non payment of rent issues is vital to a successful commercial property investment.

The commercial rent arrears recovery procedure only applies to commercial tenancies with a written lease; residential and part-residential properties are exempt. There are a number of other rules, including:

  • Only rent, applicable interest and VAT can be recovered; recovery of payments such as insurance and service charges is no longer allowed 2;
  • Your tenant must be given seven days’ notice of your intention to use the commercial rent arrears recovery procedure 3; and
  • Your tenant must be at least seven days in arrears, both at the time the notice is served and at the time the goods are seized 4, 5.

Only certified enforcement agents (formerly called bailiffs) and certain other individuals may seize and sell your tenants’ goods. People who may act as enforcement agents are defined in the 2007 Act. The enforcement agent must give notice to your tenant (see above) as prescribed in section 7 of the 2013 Act.

In addition, certain goods are exempt from the rules and cannot be taken. Once the goods are seized, the enforcement agent must provide your tenant with an inventory of the goods within seven days.

Claiming rent from a sub-tenant

If a sub-tenant (for example, someone who rented a single desk in an office or a single chair in a beauty salon) would pay rent to your immediate tenant, you may have the right to claim the rent directly from the sub-tenant. See section 81 of the 2007 Act for more information.

Using commercial rent arrears recovery after the lease has ended

Commercial rent arrears recovery may only be used after the lease has ended in relation to goods taken before the tenancy ended, or if a number of certain circumstances are met 6. These are:

  • The lease must not have ended more than six months ago;
  • The lease must not have been ended by forfeiture;
  • The rent was owed by whomever was the tenant when the lease ended;
  • That person still possesses some of the premises or the goods on them;
  • The premises or goods are occupied under a commercial lease; and
  • The person who was the landlord when the lease ended is “entitled to the immediate reversion” (i.e. the landlord would resume ownership of the property after the end of the lease 7)

More information

For more information on commercial rent arrears recovery, see The Taking Control of Goods Regulations 2013 in full. Remember that falling foul of legislation can constitute a criminal offence; if seeking to seize your tenants’ goods, be sure to use a certified enforcement agent. You can check that an enforcement agent is certified on the official Ministry of Justice website: www.justice.gov.uk/courts/enforcement-officers.

References

[1]    http://www.legislation.gov.uk/ukpga/2007/15/section/71
[2]    Ibid., section/76
[3]    http://www.legislation.gov.uk/uksi/2013/1894/regulation/6/made
[4]    Ibid., 52/made
[5]    http://www.legislation.gov.uk/ukpga/2007/15/section/79
[6]    Ibid., section/77
[7]    http://legal-dictionary.thefreedictionary.com/reversion

This information should not be interpreted as financial advice. Commercial mortgage rates are subject to change. Speak to our advisors for a mortgage illustration.

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