As of 30th July 2013, the UK Government has published legislation to reform the process that landlord and bailiffs must follow when seizing goods to recover unpaid commercial rent, including VAT and interest.
Stephanie Whitchurch, commercial litigation solicitor at Tallents in Newark explains the revised procedures for commercial rent arrears recovery.
Says Stephanie:
Previously, under the common law right to ‘distress for rent’, landlords, or a certified bailiff acting on the landlord’s behalf, could enter leased commercial property to encourage tenants to immediately pay their rent arrears owed, or remove and sell goods owned by the tenant up to the value of the arrears.
The element of surprise under the common law right made this an extremely effective process for landlords wishing to recover rent arrears quickly. There was also no requirement for landlords to initiate court proceedings to recover rent arrears.
However, the remedy of ‘distress for rent’ could be very upsetting for tenants, so by making these changes to the law the government has taken steps to address the balance.
Stephanie continues:
From 6th April 2014, Commercial Rent Arrears Recovery (CRAR) will replace the common law right to distress for rent. The changes in regulation are fairly detailed and comprehensive, and there are areas that commercial tenants and landlords should both be aware of in advance of next April.
The key aspects of the new CRAR law include:
- Notice of enforcement– a minimum of seven clear days’ notice in writing must be given before landlords can use the CRAR process to take control of any goods belonging to a tenant. However, the court can order a lesser notice period if the debtor is likely to move or dispose of goods to prevent enforcement of the notice.
- Principal rent recovery – CRAR can only be used to recover outstanding arrears of principal rent equal to or greater than seven days or more, plus VAT and interest. The procedure cannot be used to recover other outstanding lease sums (such as service charges or insurance payments) even if these are reserved as rent.
- Time restrictions for recovery – the ability to take control of goods is limited to the hours between 6am and 9pm (or other business hours for the tenant in question) and the previous restriction on the exercise of distress on a Sunday is abolished.
- Clarification on exempt goods – there are certain categories of goods that are exempt from the CRAR process and cannot be taken control of, including goods necessary for a tenant’s business, such as tools of trade up to a value of just £1,350; items required to satisfy the basic domestic needs of the tenant; and goods owned by third parties (including sub-tenants).
- Notice to sub-tenants – landlords will be able to serve notice on sub-tenants, redirecting their rent so it is paid directly to the landlord instead of the principal tenant, but this will only take effect 14 clear days following service of the ‘Notice of Enforcement’.
- Controlled goods agreements – there will be detailed procedures for bailiffs on entering and re-entering commercial premises; specifically focusing on securing/taking control of goods left on site; i.e. replacing the existing ‘walking possession’ procedure; and selling goods. Landlords will no longer be able to apply distraint themselves.
- Restrictions on mixed-use premises – where part of the commercial property is let or occupied as a dwelling, it will not be included in the new law.
Stephanie finishes:
These changes have been made to redress some of the more extreme results of the common law remedy of distress for tenants. However, we expect landlords to now seek alternative ways to recover rent arrears, including initiating court proceedings or forfeiting the lease. Our commercial lawyers are here to help with advice in advance of the law change on 6th April 2014.