During a lease contract, some commercial landlords will come across a tenant who misses a rental payment.
Prior to 2014, a landlord was able to exercise distress if a tenant was in arrears. This meant a landlord was able to quickly seize tenant’s goods without having to give prior notice. Usually, as a bailiff would just turn up and seize goods, this would encourage the tenant to pay the arrears without the goods having to be sold.
Due to objections to landlords exercising distress, it was replaced by Commercial Rent Arrears Recovery (CRAR).
CRAR is more complex in comparison to exercising distress as one of the requirements includes having to serve prior notice before goods are seized.
Below, Emyr Pierce answers the most frequently asked questions when it comes to CRAR.
Which tenancies are covered by CRAR?
CRAR only applies to tenants of commercial properties. Mixed-use (commercial and residential) properties are not included unless they are under separate leases.
What is covered in CRAR?
CRAR only recovers rent with interest and VAT. Unlike distress, CRAR does not cover service charge, maintenance, insurance or other supplementary charges.
How much can be seized?
The first £1,350 worth of tenant’s goods is exempt from CRAR. All items above the limit, including computers and vehicles, can be seized, unless they are leased items.
Does notice have to be given?
Yes, with CRAR a ‘notice of enforcement’ is required and a landlord is obligated to give at least seven days’ notice, excluding Sundays Bank Holidays, Good Friday and Christmas.
The ‘notice of enforcement’ gives tenants the opportunity to pay the arrears to prevent the ‘enforcement agent’ turning up, however this is also one of the disadvantages of CRAR as landlords believe tenants can move goods away so they cannot be seized. If a landlord believes this, they can apply to court for a shorter notice period but this is more costly as it involves more administration.
What is the general procedure?
After notice is given, CRAR can then be executed by a certified enforcement agent. The agent does not require a warrant provided he does not use force. The agent can then enter the premises anytime between 6am and 9pm, 7 days a week, or any other time provided it is within the tenant’s business hours.
Once the enforcement agent is on the premises, the goods must then be secured and removed from the premises (or vice versa), or the tenant and agent can sign a ‘controlled goods agreement’. This mean tenants retain custody of goods, acknowledges the agent is taking control, and agrees not to remove or dispose before the debt is paid.
Once seized goods are obtained and secured, the enforcement agent must give seven days’ notice. Goods will then be sold at an auction for the best price than can be reasonably obtained.
Other Important Information
- It is important to note that if the route of CRAR is taken, a landlord waives their right to repossession.
- If a tenants is are going through administration or liquidation, a statutory moratorium prevents the use of CRAR.
CRAR is a good option for landlords to take if a tenant falls into arrears and wants to recover pay. It is always advised to seek independent legal advice from a commercial property specialist to help understand the issue and to find out what the best options are.