Changes to recovering commercial rental arrears

March 2014

Landlords should take note that the remedy of distress (which is to seize a tenant’s goods in order to recover rental arrears) will be abolished from 6 April 2014. To redeem rent owed landlords (or their mortgagees) will from that date onwards need to utilise the commercial rent arrears recovery (CRAR) provisions of Part 3 of the Tribunals, Courts and Enforcement Act 2007using a prescribed enforcement procedure.

In brief, there are seven essential differences between the remedy of distress and the new CRAR regime which landlords and tenants should both bear in mind:

  1. Distress requires a landlord and tenant relationship to exist but does not demand a written lease. CRAR requires there to be a written lease.
  2. Distress allows a landlord to recover all sums payable under the lease whereas only rent and the VAT and interest thereon is recoverable under CRAR. In addition, CRAR requires there to be a minimum of 7 days rent to be outstanding whereas there is no such minimum for distress.
  3. CRAR is only exercisable in respect of commercial premises whereas distress can also be used in relation to mixed use properties.
  4. CRAR requires an enforcement agent to be instructed in writing whereas there is no such requirement to instruct a bailiff in writing under the law of distress.
  5. CRAR requires a notice to be given to the tenant 7 clear days prior to enforcement whereas no such notice is required under the law of distress.
  6. Under the law of distress the premises can be entered between sunrise and sunset on any day other than a Sunday whereas CRAR allows entry to be made between 6am and 9pm on any day of the week including Sundays and during the tenant’s business hours if they are outside the standard 6am to 9pm period.
  7. The law of distress allows goods to be sold after 5 days and does not prescribe the method of sale whereas CRAR requires the goods to be sold at public auction or such other means as ordered by the court. The tenant must be given 7 clear days notice of the sale.

For landlords this change to the law is likely to be an unwelcomed one as the scope of CRAR is narrower than that of distress, with much tighter restrictions on landlords when seeking to recover outstanding rent. But, landlords will no doubt take comfort in the fact that following the new procedures still gives them influence to recoup any debts.  Landlords in doubt of any of the legislative changes should seek legal advice as breaching these changes could affect the amount of money a landlord is able to recover. 

Please contact Stephen Carew, Senior Solicitor in the Commercial Property Department