Commercial landlords, are you ready for CRAR and what is it?

The Government’s new Commercial Rent Arrears Recovery legislation is to take effect on 6th April 2014.  It replaces the landlord’s existing right of distress against tenants.  This was an ancient common law right to dis-train on goods, otherwise known as the remedy of distress.  To rely on the remedy the tenant needed to be in default with their rent and their landlord could simply complete a Notice of Distress and send that off together with a bailiff to the demised premises to seize the defaulting tenant’s goods which they could then sell to settle outstanding rent arrears.

New legislation has introduced a new procedure called Commercial Rent Arrears Recovery which is simply abbreviated to CRAR.  The remedy of distress was often seen as a real benefit to landlords whereas it is likely to be commercial tenants who are welcoming the changes.  Looking at a snapshot of these changes to come reveals the following:

Distress

1.  Notice – a landlord could enter and seize goods without notice
2. Arrears – was available to recover all sums reserved as rent under the lease
3. Threshold – no minimum amount
4. Sub-tenants.  A landlord could serve a Notice pursuant to Section 6 of the Law of Distress (Amendment) Act 1908 which requires a sub-tenant to immediately pay the landlord the rent to them and not to the defaulting tenant
5. The landlord or a bailiff could exercise distress

CRAR

1. Notice – the landlord must give the tenant at least 7 days clear notice in writing of his intention to use the CRAR procedure
2. Arrears – this is available only in relation to net unpaid rent
3. Threshold – there is a minimum of 7 days outstanding rent required before a landlord can do CRAR.  The landlord must be able to calculate what rent is outstanding and VAT and interest deducted whilst any set-off that the tenant may have must be taken into account
4. Sub-tenants – It is still possible to ask a sub-tenant to pay the landlord but this only takes effect after the sub-tenant has been given 14 clear days notice by the landlord
5. Only an authorised enforcement agent can exercise CRAR (previously referred to as a bailiff)

The new procedure will only apply to commercial tenancies where there is a written tenancy.  Further, the procedure will not apply to sites relating to mixed-use where there is a residential element to the occupation.

The above suggests that CRAR will not be available at all in relation to licenses.  Initial impressions suggest that CRAR will not quite be the weapon for the landlord that distress was.  Further, it appears that a landlord will have to put its plans into place at an earlier stage with some thought rather than having the luxury of acting at a moments notice.

For further information contact Guy Lightowler on 01619305175.