Legal Q&A: Recovering rent arrears
Currently, the common law remedy of distress for rent allows a landlord to seize goods from premises that it has let and to sell them to cover arrears of rent due to it in respect of those premises.
The Taking Control of Goods Regulations 2013 will come into force on 6 April 2014 and provide for a new statutory regime known as Commercial Rent Arrears Recovery (CRAR).
Effect on Mixed Use Premises
(Premises used for both residential and commercial use e.g. a pub with a flat above).
Under the current law of distress, a landlord may enter the commercial part of the premises and seize assets to recover rent arrears. However, under CRAR where part of the property is used as a residence the landlord will no longer be able to do this. CRAR does not apply to residential or partly residential premises.
This is likely to cause difficulties for commercial landlords with rent arrears, as it essentially leaves them in the same position as residential landlords facing arrears. They will first have to go to court to obtain a Judgment and then enforce that Judgment if it remains unsatisfied.
Going through the courts takes much longer and is likely to be more costly than simply instructing a bailiff.
Effect on Commercial Premises
(Premises used solely for commercial use)
CRAR will apply to purely commercial premises. A summary of the key procedural changes is outlined below.
- Most significantly a formal notice must now be given to the tenant before the enforcement process can begin. The purpose of the notice is to warn the tenant of the procedural and financial consequences of failing to pay the debt. In contrast, under the current law of distress, there is no need to give any notice before sending in a bailiff.
- The tenant has at least 7 days from the notice before bailiffs can take control of their goods. This effectively removes the ‘surprise’ element of distress which has historically made it a popular remedy with landlords. Under CRAR, unscrupulous tenants will be able to dispose of goods or to remove them from the premises before the bailiffs have a chance to seize them.
- Once the tenant’s goods have been seized by bailiffs, there is a further 7 day period before they can be sold.
As well as procedural changes the regulations also impose a number of restrictions on the use of the remedy:
- The lease must be in writing. An oral agreement is not sufficient.
- The rent must be in arrears of at least seven days.
- The right to use CRAR only applies to the principal rent due and not to any rates, services charges or insurance charges.
- Only certified bailiffs (known as enforcement agents) may seize goods, not the landlord himself.
- Enforcement agents may now enter premises at any time when they are open for business. The restriction on the exercise of distress on a Sunday will be abolished and the new remedy may now be used on any day of the week.
In conclusion it does not seem that the rights of landlords of mixed use premises have been fully considered by the new legislation. However this does not prevent landlords of such premises from recovering rent arrears, it just means that the process may now take longer as legal proceedings will need to be issued before enforcement action will be available.
Separate lets?
Landlords of mixed use premises may wish to consider whether it is practical to let the residential and commercial parts of the premises separately, so that CRAR would be available at least in respect of the commercial part of the premises. However, this may not always be feasible; for instance if the residential premises do not have their own entrance.
A landlord of separately let commercial and residential premises might also find himself in the situation where the tenancy of the commercial premises has been terminated (perhaps by forfeiture) but the residential tenants remain and there are no grounds to remove them e.g. if the residential rent at least is paid up to date.
Peter Hall is an associate at national law firm Weightmans
