Commercial rent arrears recovery (CRAR)

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Despite coming into force in April this year, there are still some commercial landlords that aren’t aware of the changes relating to the recovery of rent arrears from their tenants.

Prior to April 2014 a commercial landlord could use the common law right of distress to recover rent arrears. The tenant’s goods could be seized and sold in order to satisfy the tenant’s debts. This was considered by many to be a heavy-handed approach and it has now been abolished as a result.

The Tribunals Courts and Enforcement Act 2007 and Taking Control of Goods Regulations 2013 set out the circumstances in which CRAR can be exercised. There must be a written tenancy agreement but it is also worth checking the additional criteria to ensure it applies to each individual case.

Under CRAR a landlord is limited to recovering any unpaid rent only. Even in the event service charges and other sums payable are reserved as rent under the terms of the lease, these cannot be recovered using CRAR. A tenant must also be in a prescribed amount of rent arrears prior to the landlord serving the notice of enforcement and taking control of the goods.

The prescribed period for the purposes of the legislation is seven days’ worth of arrears and any interest or VAT should not be taken into account when this sum is calculated. A seven day notice of the landlord’s intention to exercise CRAR must first be served on the tenant.

A landlord must use an enforcement agent to exercise CRAR. The way in which the enforcement agent must be instructed and the procedure it should then follow is governed by the legislation and it is important that this is followed correctly.

It is also important for the landlord to consider whether or not it intends to forfeit the lease for the failure by the tenant to pay its rent. If so, consideration needs to be given to whether or not exercising the CRAR procedure will waive the landlord’s right to forfeit the lease.

To find out whether you can use CRAR or whether some other method of recovering rent arrears will be more suitable please speak to Robert Twining by calling 01732 770660 or email r.twining@warners.law

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