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Landlords be aware….CRAR is coming!

The widely trailed new Commercial Rent Arrears Recovery (‘CRAR’) procedures are set to come into force from 6 April 2014 as a part of the Taking Control of Goods Regulations 2013.

These new regulations relate to the procedure for taking control of goods under Schedule 12 to the Tribunals, Courts and Enforcement Act 2007. This has significant implications for landlords of commercial property, providing a new statutory code in relation to the procedure for commercial rent arrears recovery under section 72 of the Act. This replaces the common law right to ‘distress’ i.e. distraining on goods.

The current remedy allows a landlord or certified bailiff, acting on the landlord’s behalf, to enter leased commercial premises occupied by a defaulting tenant and remove and sell goods owned by that tenant up to the value of the rent arrears. This effectively allows a landlord to recover rent arrears without initiating court proceedings.

The new system will introduce a requirement for the landlord to serve a “notice of enforcement” on the tenant before becoming entitled to send in certified bailiffs (‘enforcement agents’) to exercise CRAR. Crucially, a seven day notice period will apply, though the court will have the power to order a lesser period of notice where it is likely that the debtor will move or dispose of goods to prevent enforcement.

Landlords will not be entitled to use CRAR against a tenant unless the outstanding amount is equal to or greater than seven days rent arrears, this being a higher threshold than the one day minimum that currently exists.

CRAR will only enable landlords to recover unpaid rent, to include VAT and interest, but critically not related costs such as service charges and insurance. Landlords will not be able to use the remedy where the property or any part of it is being used for residential purposes, unless this is in breach of the terms of the lease.

This will no doubt be seen as a welcome development by tenants; landlord’s less so, as the age old, but highly effective remedy of distress, will be rendered very much toothless by these changes.

Written by Philip Deakin

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