The changing face of rent arrears recovery – CRAR

The landlord’s ancient right of distress against his tenant to recover arrears of commercial rent will will soon be replaced by a new statutory regime.

Commercial Rent Arrears Recovery (CRAR) comes into force on 6 April 2014

A recent review means that the landlord’s ancient right of distress against his tenant to recover arrears of rent will now be abolished. For commercial premises only, it will be replaced by a new statutory regime for CRAR.

This means that the option of using bailiffs to recover debt will be severely restricted and governed by strict regulations.

CRAR applies to all tenancies of commercial premises. The tenancy must be in writing for CRAR to apply.

Using CRAR will waive any right to forfeit that may have arisen. Before exercising CRAR, the landlord should consider carefully:

• Whether it will matter that any right to forfeit will be lost in consequence.
• How the landlord will deal with any existing breaches of the lease (other than the non-payment of rent).

CRAR only applies to leases of commercial premises. To be treated as commercial the premises cannot consist of a dwelling, nor be occupied as a dwelling. CRAR can only be exercised at the premises demised by the lease.

CRAR will only apply to the lease let and used only for commercial purposes. If the premises have been underlet as a dwelling in breach of the headlease it will not take the lease outside the scope of CRAR. These provisions are designed to stop a commercial tenant avoiding CRAR by allowing a third party to occupy a part of the premises as a dwelling in breach of the lease.

Who can use CRAR?

Only the landlord can exercise CRAR being the person entitled to the immediate reversion to the lease. It can be exercised by a landlord whose immediate tenant has failed to pay the rent. If the landlord’s interest is owned jointly, any one of the joint owners may exercise CRAR.

When can CRAR be used?

Each of the following conditions must be satisfied before CRAR can be exercised:

• The tenant must be in arrears of rent before the notice of enforcement is given
• The amount of the arrears must be certain or capable of being calculated with certainty.
• The “net unpaid rent” equals or exceeds an amount equal to seven days rent
• The tenant must be in arrears of the net unpaid rent when control of the goods is taken. If arrears go below that limit the process must stop.

How can CRAR be enforced?

Only an enforcement agent can exercise CRAR on behalf of a landlord, but there is little difference between an enforcement agent and a certificated bailiff. An enforcement agent can only exercise CRAR if the tenant has been given notice at least seven clear days before CRAR is exercised and the notice correctly served. The notice of enforcement must be in writing and must contain specified information under the CRAR.

An enforcement agent may exercise CRAR over goods only if they are on the premises that the enforcement agent has a power to enter, belong to the tenant, are situated in England or Wales and are not exempt.

The Fees Regulations 2014 break down what fees can be recovered for specific stages of the CRAR process. A fixed fee is permitted for each stage and in some circumstances, a percentage of the value of the goods over which control has been taken, can also be recovered.

More Information

For more information on this new regime please contact Kerry and her team.

This article was written by Kerry Hull, a Solicitor within our Dispute Resolution Team. This article is only intended to provide a general summary and does not constitute legal advice. Specific legal advice should be taken on each individual matter. This article is based on the law as at February 2014.