Recovery of rent arrears in commercial leases - new rules (CRAR)
Author: Siobhan Goodacre, Head of Property Group
Posted: 2009-03-10

Introduced by the Tribunals, Courts and Enforcement Act 2007 (“the Act”); awaiting regulations providing details of the Act and an order bringing the provisions into force.

Background

The changes in the Act were introduced following the Law Commission's opinion that distress for rent was wrong in principle, due to the fact that it could be unjust to debtors (as no leave of court was required), and unfair to other creditors not having similar rights to recover their debts owing. Responses to the Government's Consultation Paper however confirmed that distress for rent remained an effective remedy for recovering rent arrears.

The Act abolishes the common law right to distrain, but introduces a modified statutory regime for recovery of rent arrears under commercial leases. Here is a brief overview of the relevant sections of the Act :-

Section 72 introduces the Commercial Rent Arrears Recovery procedure (CRAR), to be used by a Landlord of commercial premises to recover rent payable by a Tenant under a lease.

Section 76 stipulates that the rent recoverable under the procedure is the amount payable under a lease for the possession and use of the demised premises only (plus interest and VAT). “Rent” for these purposes does not include rates, council tax, services, insurance, whether or not these are called “Rent” in the lease.

Section 77 sets out the conditions to be met before CRAR can be exercised:-

(a) the rent has become due and payable before notice of enforcement is given.

(b) the rent is certain or capable of being calculated with certainty.

(c) the rent is reduced by any permitted deduction - i.e. any set-off that the Tenant would be properly entitled to claim in an action by the Landlord for the rent.

(d) the net unpaid rent (less interest and VAT and permitted deductions) is at least the minimum amount (minimum amount to be set by regulations).

Section 78 states that the Tenant can apply to the court for an order setting aside the enforcement notice or for an order specifying that no further steps are to be taken by the Landlord.

Section 79 stipulates that CRAR cannot be used after the end of a lease, however there are limited exceptions to this, i.e. the Tenant has to remain in possession of at least part of the demised premises under a new lease.

Schedule 12 sets out the procedure to be used for rent arrears recovery, namely taking control of goods and selling them to recover a sum.

• Need to appoint an enforcement agent:-

(a) acting under a certificate under Section 64 (certificate issued by judge);
(b) an exempt person; (a constable, an officer of Revenue and Customs, court officers and staff.
(c) acting in the presence and under the direction of a person to whom paragraph (a) or (b) applies.



• Only enforcement agents can take control of goods and sell them.



• The Enforcement Notice served on a Tenant binds the goods from the time when the notice is given.



• Regulations will specify a minimum notice period and form of notice etc.



• The enforcement agent can only take control of goods if they are on the premises he has the power to enter, or on a highway. Goods have to belong to the debtor and the enforcement agent can not take control of goods, the value of which is more than the amount outstanding (unless there are no goods of a lesser value to take).



• The enforcement agent can take control of goods in the demised premises (not any other property belonging to the Tenant).



• A warrant for the use of reasonable force can be applied for from the court.



• The Tenant must be provided with an inventory of the goods taken control of.



• Goods to be sold at public auction only - (before the sale, the Tenant has to be given notice of the date, time and place of sale).



• Obligation to sell for the best price that can reasonably be obtained.



• A purchaser of the goods acquires good title, unless the goods were not the Tenant's at the time of sale and the enforcement agent, the purchaser or the creditor (Landlord) has notice of it, or a lawful claimant has made an application to court claiming interest.

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