CRAR comes into force
2nd April, 2014
Commercial Rent Arrears Recovery for Leases (CRAR) comes into effect on 6 April 2014.
From this date, the remedy of “distress” for the recovery of rent arrears in commercial leases (i.e. the right to instruct bailiffs to enter tenant’s premises to seize goods as security for payment) is replaced by a new statutory regime under the Tribunals Courts and Enforcement Act 2007 (TCEA) and the Taking Control of Goods Regulations 2013. From this date, CRAR must be used rather than “distress” for commercial premises.
What is CRAR?
CRAR is a method of enforcement to recover rent arrears relating to commercial property only. It is similar to distress in that it allows a landlord to whom rent is owed to take control of goods belonging to the debtor.
Will this change affect me?
CRAR will apply to leases of commercial premises. Additionally, CRAR will only apply to written leases (there being no distress remedy equivalent for implied tenancies).
What can be recovered?
For the purposes of CRAR, “Rent” is defined as being the amount payable under the lease for the possession and use of the premises (plus interest and VAT on that amount).
It can never be used to recover additional sums such as those for Service Charge, rates, repairs, insurance, etc even if the lease is drafted so as to define these as “Rent.”
How can CRAR be used?
CRAR can only be used where the appropriate enforcement notice has been served on the tenant. This must be served at least 7 clear days before enforcement takes place.
CRAR can also only be used if the outstanding sums (less interest due under the lease, VAT and any set-off the tenant is entitled to make) exceed the minimum amount of 7 days’ rent.
The actual exercise of CRAR must be carried out by an enforcement agent and there are clear rules that must be followed regarding what items control can be taken of and the procedure regarding the valuation and sale of these items.
Significantly, the enforcement agent must wait at least seven clear days before sale of the goods can take place and usually they must also give seven clear days’ notice of sale to the debtor.
What is the position regarding undertenants?
Under the CRAR provisions, there is also a right for a landlord to require an undertenant to pay the rent it owes directly to the landlord rather than the intermediate tenant (replacing the old, similar provisions under the law of distress). This right arises so long as the landlord serves a section 81 notice on the undertenant.
However, all of the provisions concerning the exercise of CRAR set out above, including the type and amount of Rent that can be recovered, apply to a section 81 notice.
Fourteen days after the notice is served, the right becomes effective and CRAR can be exercised against the undertenant if they fail to pay.
If payment is made under the notice, the undertenant has the right to deduct the amount from the rent that he would otherwise pay to his immediate landlord.
Further Information
For more information on this issue, please do not hesitate to get in touch by contacting Sharon Mathieson, Jeremy Hardy or Victoria Lowrie.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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