At the third time of asking, the Upper Tribunal (UT) has granted an application to modify a...
Distress is an ancient common law remedy. It enables a landlord faced with a tenant who has not paid rent, to enter a leased premises to seize the tenant’s goods and sell them to recover the arrears of rent.
The current rules on distress are being replaced with a new statutory procedure known as Commercial Rent Arrears Recovery or CRAR. From 6 April 2014 CRAR must be used for commercial property. CRAR will provide a considerably more limited remedy to landlords than the current rules on distress for rent.
To which leases does CRAR apply?
CRAR applies to all tenancies of commercial premises, including tenancies at will. However, the tenancy must be in writing. If the tenancy is unwritten, CRAR cannot be exercised. It does not apply to licences.
For CRAR premises are treated as commercial unless all or any part of the premises are lawfully let, underlet or occupied as a dwelling. CRAR will not apply to a mixed use premises demised under a single lease for example a shop with a residential flat above.
If a tenant or a sub-tenant uses all or part of the premises as a dwelling in breach of the terms of the lease or a superior lease, then CRAR will still apply. This is designed to prevent tenants from attempting to avoid CRAR by allowing a third party to live in the premises, in breach of the lease.
Who can exercise CRAR?
CRAR can be exercised by a landlord whose immediate tenant has failed to pay rent. If the landlord’s interest is mortgaged, in certain circumstances the mortgagee will be entitled to exercise CRAR.
How does a landlord exercise CRAR?
Only an enforcement agent can exercise CRAR following authorisation in writing from a landlord.
Notice must be given at least 7 clear days (excluding Sundays, bank holidays, Good Friday and Christmas Day) before CRAR is exercised. The notice must contain certain prescribed information and must be given by the enforcement agent.
Once the notice has expired, generally the enforcement agent may enter the premises on any day of the week between the hours of 6am and 9pm.
The enforcement agent must exercise CRAR within 12 months of the date of the enforcement notice, although the court does have discretion to extend this period. If the enforcement agent and the tenant enter into a repayment agreement and that agreement is breached by the tenant, the 12 month period begins to run from the date of the breach of the repayment agreement.
The requirement to give notice may prove to be the most controversial aspect of CRAR, as the current rules on distress for rent allow landlords to enter leased premises without any prior notice. The seven clear day period could give some tenants the opportunity to remove goods from the premises.
What rent can be recovered under CRAR?
Rent is the amount payable under the lease for the possession and use of the premises. It does not include any sum in respect of rates, council tax, services, repairs, maintenance or insurance even if they are reserved as rent in the lease.
When can CRAR be exercised?
There must be arrears of rent, which are certain or capable of being calculated with certainty before notice of enforcement is given.
The net unpaid rent, which is the amount of rent in respect of which CRAR is exercisable, less any interest or VAT and any deductions or set-off that the tenant would be able to claim, must be equal to or exceeds a minimum amount, currently set at 7 days’ rent.
The tenant must be in arrears of the net unpaid rent when notice of enforcement is given and when control of the goods is taken.
What about the right to recover rent from an under tenant?
A superior landlord can require an under tenant to pay rent that it owes directly to the landlord rather than the immediate tenant. CRAR preserves this right but it does introduce a new notice procedure. An under tenant is not obliged to pay the rent to a superior landlord until a period of 14 clear days from the service of the notice have elapsed. A landlord will need to consider the implications of this where rent payments under a sublease are structured differently to those under the superior lease.