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Commercial Rent Arrears Recovery: What You Need To Know

Written by: Andrew Idle

14/05/2014 14:57

Commercial Rent Arrears Recovery (CRAR), which came into effect in April, has drastically altered the way that landlords of commercial premises are permitted to deal with rent arrears.

The new regulations have abolished the ancient right of distress, whereby landlords were able to recover rent arrears by seizing tenant’s assets without prior warning and a court order. In principle, CRAR is a positive step to redressing the balance between tenants and landlords by ensuring that tenants are treated fairly across the board.

It’s essential that commercial property landlords now follow the strict CRAR process when seizing tenant’s goods in the recovery of rent arrears, so here is what you need to know:

• Only available to landlords of commercial premises
• Not applicable to premises that are also occupied as a dwelling e.g. a shop with a flat above with one lease agreement.
• Lease must be in writing
• Can only be used to recover rent, VAT and interest
• Does not apply to service charges, rates or insurance
• Tenant must be given seven clear days written notice
• Tenant must be at least seven days in rent arrears
• Clear guidelines on goods that cannot be seized
• Seized goods must be valued within seven days and then sold or disposed of

CRAR is certainly good news for tenants and some claim it will have a positive impact on tenant-landlord relations, ensuring that tenants are treated fairly but that they also recognise the landlord’s law-given right to recoup arrears.

It may prove more costly and time-consuming for landlords to recover rent arrears via CRAR but there are other options available to them.

These include serving a statutory demand on the tenant (after which the landlord can commence insolvency proceedings if the debt remains unpaid), bringing court proceedings to recover the debt or taking steps to forfeit the lease. The use of charging orders by creditors has increased significantly in recent years though they can be challenged through legal process. There may also be some other security such as a guarantor or a rent deposit, although a well-advised landlord will usually have looked to this before resorting to distress / CRAR.

All of these will normally be more expensive than the remedy of distress would have been. It was a blunt tool with minimal paperwork involved. In our experience Landlords only appointed the Certified Bailiff (as they used to be known) after they had exhausted other options and it was very much a last resort, usually due to the tenant avoiding the arrears issue and hoping it would just go away.

The change in the law makes it even more vital that Landlords maintain regular communication and dialogue with their tenants and so they are more likely to become aware of any rent payment problems at an earlier stage and can work constructively towards resolving them without the relationship breaking down. This is where the services of a good managing agent are invaluable.

Andrew Idle Associates is on hand to offer expert advice to client’s who let commercial properties within the West Yorkshire region. If you have any questions about CRAR and how it might affect your lease agreements, feel free to get in touch on 01274 743884.

Andrew Idle