Top 10 Tips for Commercial Rent Arrears Recovery
Commercial Rent Arrears Recovery (CRAR) is a method of enforcement to recover rent arrears relating to commercial property. It applies to all written commercial tenancies. It does not apply to residential leases.
CRAR allows a landlord to instruct an enforcement agent to take control of a tenant’s goods and sell them in order to recover an equivalent value to the rent arrears.
Seizing and selling another person’s goods is a draconian measure and therefore there is a substantial amount of red tape surrounding the process. Taking legal advice is essential.
Here are some basic tips to avoid falling foul of the law:-
1. Check that CRAR applies
CRAR applies to all tenancies of commercial premises. It is important to get advice if the premises is mixed use or if the premises is let under an immediate/inferior lease as a dwelling, or if it is occupied as a dwelling. However, the procedure is not available for tenancies that are not in writing. Similarly, if the lease has ended, CRAR may not be available. Only the Landlord can exercise CRAR.
2. Consider your options
CRAR will waive any right to forfeiture that may have arisen. It is therefore important to consider your options first before utilising CRAR. There may be other existing breaches of the lease which could require forfeiture as a more appropriate remedy.
3. What can be recovered with CRAR?
Only basic rent can be recovered with CRAR. “Rent” is the amount payable under the lease for the possession and use of the premises. Rent does not include any sum in respect of rates, council tax, services, repairs, maintenance, insurance or other ancillary matters even if these amounts are reserved as rent in the lease.
4. Use an enforcement agent
Only an enforcement agent can exercise CRAR on behalf of a landlord. The landlord should authorise the enforcement agent in writing which should also be signed by the landlord.
5. Give the Tenant notice
CRAR can only be exercised if the tenant has been given notice, in writing, at least seven days before entering the premises. The enforcement agent must then carry out CRAR within 12 months of the date of enforcement notice.
6. Taking Control of Goods
In order to utilise CRAR, the enforcement agent must either physically secure the goods at the property or remove the goods from the property and secure at a different location. Alternatively, the enforcement agent can pursue what’s known as a controlled goods agreement. Under a CGA, an enforcement agent would take control of the goods whilst agreeing to keep the goods in the property on the proviso that the goods are not removed/disposed of prior to the debt being settled.
7. Entering the premises
An enforcement agent should apply for a court warrant prior to entering a premises to recover goods. The agent can visit the premises on any day of the week between the hours of 0600 & 2100. If the tenant’s premises are utilised for business use; an enforcement agent can enter the premises during the tenant’s business hours even if it is outside the hours of 0600 & 2100. If the agent wishes to re-enter the premises following the initial entry, they must provide written notice at least 2 days before re-entering the premises.
8. Sale of Controlled Goods
An enforcement agent must wait at least 7 days before a sale of controlled goods can take place. A sale can take place specifically on the day after the controlled goods have been removed if the goods would become impossible to sell or would lose value during the 7-day period. A notice setting out the date, time and place of sale (typically a public auction) must be provided to the tenant at least 7 days prior to the sale. On occasions an enforcer may wish to apply to the courts for an alternative method of sale.
9. Recoverable Costs
An enforcement agent can recover his costs from the compliance stage, enforcement stage and sales stage of the CRAR process. This is essentially a fixed fee and a percentage fee. The percentage fee will be applied to the value of goods over £1500 if the enforcement took place without a high court writ. If the enforcement took place with a high court writ then the percentage fee will be applied to goods over the value of £1000.
10. Breaching the CRAR provisions
A landlord or an enforcement agent will not be a trespasser if the CRAR provisions are breached or if the enforcement agent acts under a defective writ, warrant, lease or liability order. A tenant can claim against a landlord or enforcement agent if CRAR provisions have been breached. Upon such a breach the court can order that goods are returned to the tenant or damages are paid. Damages will not be payable if the enforcement agent reasonably believed that the CRAR provisions were not breached or that the instrument he acted under was not defective.
Therefore, careful consideration should be given Commercial Rent Arrears Recovery on a commercial lease.
Whether you are a tenant or a landlord, unintended consequences could be avoided if appropriate advice is taken before the assignment of a commercial lease.
