Last year, the rules relating to the recovery of rental arrears were changed. Ruhul Ameen, a partner in our civil litigation department here at Wiseman Lee, explains the problems landlords now face with rental recovery.
On 6 April 2014, a new set of rules relating to the recovery of rental arrears by seizing tenants’ goods came into force. The new rules, whilst seeking to protect tenants’ human rights and create a more level playing field between landlord and tenant, may have gone too far, replacing what was a relatively simple and effective process with something far more technical and difficult to enforce.
The Commercial Rent Arrears Recovery (CRAR) procedure is set out in the Tribunals, Courts and Enforcement Act 2007 and the Taking Control of Goods Regulations 2013.
The ancient right of distress has been abolished. Prior to April 2014, landlords had recourse to the common law self-help remedy of distress, which enabled them to seize a tenant’s goods if the tenant failed to comply with a lease obligation to make a payment reserved as rent, provided it was for a certain amount.
Distress was a cheap and effective way of recovering rent arrears. It was widely used by landlords for payments. An important part of distress was that it could take tenants by surprise (no prior notice was required, except in certain insolvency situations), meaning that the tenant did not have an opportunity to put their goods out of the landlord’s reach. In practice, the fact that bailiffs turned up was often sufficient encouragement for the tenant to pay up, without any goods having to be sold by the bailiff.
The new procedures are much stricter, and several conditions must be met before CRAR can be used:
- CRAR only applies to leases of commercial premises and can only be used if the lease is in writing. It does not apply to residential premises or where part of the premises are used for residential purposes.
- CRAR only applies to the main rent, VAT and interest. It does not apply to other payments reserved as rent, such as service charges, insurance premiums and rates.
- CRAR can only be exercised by certified enforcement agents and the tenant must be given seven days’ notice.
- The tenant must be at least seven days in arrears before CRAR can be used.
- In addition, there is guidance about tenants’ goods that cannot be seized. Once goods have been seized, the tenant must be given an inventory of those goods by the enforcement agent as soon as reasonably possible. The seized goods must be valued within seven days and then sold or disposed of for the best price that can reasonably be obtained.
The requirement to give prior notice has emasculated CRAR and undermined its effectiveness. In view of the fact that distress was a regularly used and potent remedy for landlords where there were rent and service charge arrears, this statutory change creates a serious issue for landlords.
For more information please contact our Civil Litigation department here at Wiseman Lee.