April 2, 2014

Good news for commercial tenants as Distress is abolished

Landlords were previously entitled to do this without giving any advance warning at all, and the law had permitted this for hundreds of years.

The old rights have been replaced with the more regulated process of Commercial Rent Arrears Recovery (CRAR). Although tenants are better off under the new regime, CRAR is still intended to result in tenants’ goods being seized and sold. The changes give them more time to pay, but critics claim the seven-day warning enables tenants to take advantage of their new rights by moving their goods somewhere else, to avoid seizure.

Would tenants really go to the trouble of moving their goods elsewhere? We expect some tenants would, though it depends on the type of business they operate. Either way, the risk reduces a landlord’s options for managing a non-paying tenant.

We predict in the future there will be a shift in the wording of new leases as landlords seek greater security from their tenants from the start. Landlords will press for guarantors and/or larger rent deposits to give them options if the tenant struggles with the rent, to redress the balance. With the economic recovery continuing, landlords’ negotiating position is improving.

The landlord’s right to enter and seize goods survives, but restrictions will apply, and landlords must now follow a set procedure. The main changes are as follows:

  • Landlords must give advance written notice of their intention to seize goods to their tenant – a minimum of 7 clear days. Critics fear this advance warning means tenants will move their goods elsewhere to avoid seizure. Others say the changes achieve a fairer balance between the rights of landlords and their tenants. 
  • The remedy applies only to ‘true’ rent arrears, that is, sums payable for use and occupation, including VAT and interest. It does not apply to service charges or insurance contributions even if these are called ‘Rent’ under the lease. 
  • There must be a minimum of seven days’ rent overdue. 
  • CRAR can only be used for commercial premises. In a mixed use building CRAR will only be available if the commercial and residential areas are let on separate agreements. 
  • The landlord’s bailiff (termed an ‘enforcement agent’) must be instructed in writing, and the agent must give certain information to the tenant. 
  • The landlord’s right to forfeit the lease remains unchanged.

If you need advice about CRAR or the any options that are available to landlords and tenants contact our Property Disputes team on 0800 923 2070 or email [email protected].

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