Commercial rent arrears recovery replaces 'distress' from 6 April 2014

Apr 04, 2014

The law of distress had long allowed landlords to seize and then sell their tenant’s goods if there were arrears of rent or other sums due under the lease. Distress was often described as a self-help remedy because it was used at the landlord’s discretion and without the delays and costs associated with issuing a claim in court to obtain judgment for the arrears. Although the terminology related to distress and its references to poundbreach (a tenant’s illegal recovery of distrained goods) and replevin (the ability of a tenant to recover goods) seemed old-fashioned, the directness of this remedy and its deterrent value acted a counterbalance to increased tenant default during the recession and an often overburdened court system.

There was no doubt that distress was effective but there were concerns about the compatibility of this remedy with the right to a fair trial under the Human Rights Act 1998 and this prompted the Government to put distress on a statutory footing on 19 July 2007 when the Tribunals Courts and Enforcement Act 2007 (the “2007 Act”) received Royal Assent and set out a replacement statutory procedure called Commercial Rent Arrears Recovery (“CRAR”). The purpose of the 2007 Act was to retain a self-help remedy for landlords but one which was more even-handed and would not be subject to challenge under the Human Rights Act 1998. The 2007 act will take effect from Monday 6 April 2014 and has the following features.

  1. The equivalent of 7 days’ rent must be overdue before CRAR can be exercised.
  2. It is only possible to exercise CRAR in respect of arrears of rent plus interest and any VAT.
  3. CRAR cannot be used in respect of service charges or any sums that are defined as rent under the lease e.g. insurance premiums.
  4. A landlord must appoint a certified bailiff to exercise CRAR and may not enter the premises itself.
  5. The tenant’s goods can be secured at the premises but may also be removed if this is practical or if there are concerns that the tenant will breach the walking possession order recording which goods will be sold.
  6. The landlord must give 7 days’ written notice before the bailiff visits the premises. It was not necessary to give the tenant any notice prior to levying distress.
  7. CRAR cannot be used if any part of the premises has a residential use.
  8. If a bailiff returns to the premises to take control of goods then he must normally attend between the hours of 9.00 a.m. and 6.00 p.m. However, if the business operates outside of these hours, then the bailiff can attend at any time in order to exercise CRAR.

Since the 2007 Act received assent there has been concern that the landlord’s obligation to give the tenant 7 days’ notice will result in widespread evasion as tenants remove valuable items from the premises. The effect of the new regime is difficult to gage but some bailiffs believe that tenants do not generally try to evade enforcement because of the practical difficulties that this involves and the desire to keep trading. If there are concerns about a particular tenant then it is possible to apply to court for an order that written notice does not need to be given.

The rule against exercising CRAR where part of the premises is residential does seem overly restrictive given the clear segregation of different areas in mixed use premises and the difficulty in confusing a resident’s property with that belonging to a business but this rule already applies to forfeiture. Similarly, the rule that CRAR may only be used in respect of rent arrears seems to ignore the drafting of modern leases and the reality that a defaulting tenant will not only fail to pay the rent. 

However, whilst some of the changes brought about by CRAR will undoubtedly frustrate landlords, the purpose of the 2007 Act was to modernise distress as a self-help remedy in order to ensure that its use in an amended form was compliant with the Human Rights Act 1998. If the 2007 Act succeeds in this respect then it will have been a success which ensures that landlords can continue to benefit from a worthwhile albeit diluted remedy.

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