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Commercial Rent Arrears Recovery (CRAR)

13th February, 2014

What is it?

CRAR is a method of enforcement to recover rent arrears relating to commercial property. It comes into force on 6 April 2014. From that date, CRAR must be used for commercial property.

The common law right of distress will be abolished. Distress is a common law remedy allowing a landlord to instruct a bailiff to seize, impound and sell goods from the premises leased to a tenant of an equivalent value to the rent arrears. Prior to 6 April 2014, the remedy of distress should be used.

Using CRAR a landlord can instruct an enforcement agent to take control of a tenant’s goods and sell them in order to recover an equivalent value to the rent arrears.

Notices including certain information need to be served on the tenant by the enforcement agent at each step.

The main changes moving from distress as a remedy to CRAR relate to the following:-

• Lease – this must be in writing for CRAR to apply
• Rent – only principal rent (with more than 7 days being outstanding), VAT, and interest can be recovered under CRAR
• Premises – CRAR only applies to premises with a commercial use
• Enforcement – CRAR is exercised by an enforcement agent appointed in writing
• Notice – CRAR requires 7 clear days notice to be given
• Time of entry – under CRAC this is allowed between 6 am and 9 pm (and during the tenant’s business hours if outside these hours) on any day of the week. Using distress, entry was allowed between sunrise and sunset on any day other than Sunday.
• Sale of goods – Using CRAR goods must be sold at a public auction or as ordered by the court. The tenant is to be given at least seven clear days’ notice.

A person will be guilty of an offence if they intentionally:

• Obstruct a person lawfully acting as an enforcement agent.
• Interfere with controlled goods without a lawful excuse.

The penalties can include imprisonment and a fine.

Leases & Premises covered by CRAR

Leases

For CRAR to apply to a tenancy of commercial premises, it must be in writing.

It will not apply when a tenant remains in occupation following expiry of its lease and the landlord has not confirmed that it is willing for the tenant to remain.
Licence agreements are not covered.

Special rules apply to agricultural holdings. If rent has been due for more than a year before the enforcement notice is served, the landlord cannot use CRAR. Further, if it was agreed that the payment of rent could be deferred to the end of a quarter or half year after it legally became due, the one year time limit starts to running at the end of such period.

CRAR is only exercisable when the lease has ended if either:

1. Control of the goods was taken beforehand.

2. Rent was due and payable beforehand and all the following apply:

a. the lease did not end by forfeiture;
b. not more than six months has passed since the lease ended (or the expiry of any continuation of it under statute or under a rule of law);
c. the rent was due from the person who was the tenant at the end of the lease;
d. that person remains in possession of any part of the property;
e. any new lease allowing that person to remain in possession is a lease of commercial premises (even if the new lease is not in writing); and
f. the person who was the landlord at the end of the lease remains the immediate landlord.

Premises

CRAR only applies to leases of commercial premises and so the property cannot be let as a dwelling. If the residential occupation is in breach of the terms of the lease or any superior lease, then CRAR can still be used.

It can only be exercised at the property let by the lease.

Who can use CRAR?
CRAR can only be used by a landlord whose immediate tenant has not paid its rent.

Any joint owner may use CRAR.

A mortgagee of the landlord’s interest will be entitled to use CRAR if both of the following apply:

• The mortgagee has given notice of its intention to take possession or enter into receipt of rent and profits.
• The lease is binding on the mortgagee.

A court appointed receiver can use CRAR in the name of the landlord.

The landlord must authorise an enforcement agent in writing to carry out CRAR on its behalf.

What can you recover

Only the amount payable under the lease for the possession and use of the premises (together with interest and VAT) is recoverable.

To use CRAR all of the following conditions must be satisfied:

• The tenant must be in arrears of rent both when notice is given and when control of the goods is taken
• The arrears must be certain or capable of being calculated with certainty.
• The “net unpaid rent” is at least an amount equal to seven days rent both when notice is given and when control of the goods is taken

The landlord can require an undertenant to pay the rent that it owes directly to the landlord rather than the intermediate tenant by serving a “section 81 notice”. All of the provisions concerning CRAR, including the type of rent and the amount of rent outstanding apply here.

Note that the undertenant does not have to start paying rent to the superior landlord until a period of 14 clear days from the service of the section 81 notice.

Overview of procedure

A detailed procedure which must be followed when exercising CRAR is set out in the Tribunals, Courts and Enforcement Act 2007 and the Taking Control of Goods Regulations 2013 (SI 2013/1894).

The main points to note are:-

• Only an enforcement agent can exercise CRAR on behalf of a landlord.
• The landlord must authorise the enforcement agent in writing providing specified information and signed by the landlord.
• The tenant must be given at least seven clear days before CRAR is used by the enforcement agent. The notice must contain certain information and be served in one of the ways specified.
• CRAR must be exercised by the enforcement agent within 12 months of the date of the enforcement notice. The court can extend this in certain circumstances.
• The enforcement agent will exercise CRAR by securing the goods on the premises, removing the goods or entering into a controlled goods agreement with the tenant.
• An enforcement agent can apply to court for the issue of a warrant authorising the entry into other premises to take control of goods. A warrant will also entitle repeated entry.
• Repeated entry is also permitted without a warrant if there were initially no or insufficient goods of the tenant to satisfy the outstanding sum. Notice of re-entry must be given to the tenant at least two clear days before it takes place.
• Reasonable force can be used to enter or re-enter the property via any door, or other usual means by which entry is gained to property. A notice containing certain specified information should be given to the tenant after entry.
• Detailed rules set out what goods can be taken, notices to be given to the tenant, agreement if goods are not removed and how the valuation, sale and notification thereof is to be undertaken.
• Fees that can be recovered are set out in the Taking Control of Goods (Fees) Regulations 2014 (SI 2014/1).

Tips & Traps

Tips

1. Using CRAR will waive any right to forfeit that may have arisen.

Before doing so, you should consider:

• what difference does it make if the right to forfeit is lost
• How will other existing breaches of the lease (apart from non-payment of rent) be dealt with?

2. Allowing residential occupation should be considered carefully when agreeing the permitted use of premises as you may be limiting the enforcement remedies available.

Traps

The tenant can bring a claim against the enforcement agent or the landlord for a breach of the CRAR provisions.

If there has been a breach, the court can order:

• return of goods to the tenant
• damages.

For more information please contact Emma McGlinchey on 01244 405567 or email [email protected] and she will put you in touch with a member of the property litigation team.

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