From 6 April 2014 a landlord’s right to exercise the remedy of Distress is abolished.
The remedy of Distress allows a landlord to instruct bailiffs to enter rented commercial property to seize goods as security for payment of unpaid rent.
For the landlord the procedure is quick, simple and effective: a bailiff appointed by a landlord attends the property; if the tenant doesn’t immediately pay the rent arrears and the bailiff’s costs the bailiff can seize the tenant’s goods as security for the value of the total sum owed. The time from instructing the bailiff to recovering the arrears is usually less than 48 hours and will cost the landlord nothing.
The remedy of Distress is aptly named from a tenant’s point of view and can leave the tenant feeling bullied; the relationship between the parties can break down irretrievably; and, worst for all concerned, the action can force the tenant out of business.
From 6 April 2014 the rules change significantly with the introduction of Commercial Rent Arrears Recovery (“CRAR”) and landlords and tenants should note the following:
-You can only use CRAR for commercial property. CRAR cannot be used for “mixed use” property let on one lease (e.g. a shop with a permitted residential flat above). Even if the residential part is not used as a dwelling, the fact it can be used as such is enough to frustrate CRAR.
-You can only recover the principal rent and any VAT and interest. Other sums like insurance and service charge are not recoverable even if they are called “rent” in the lease. This causes problems for “inclusive” rents where insurance and service charge is not separately stated.
-You must be owed / owe at least seven days rent. This can be a problem where rents are paid monthly and a tenant keeps the arrears below the seven day threshold.
-You must give / be given seven days notice before any action is taken.
Where CRAR is not available Landlord’s will still be able to use other remedies to recover rent arrears (e.g. court action or a statutory demand) but these can take much more time than Distress and can incur unrecoverable costs.
If any landlords or tenants which to discuss CRAR or the recovery of commercial rent arrears generally they should contact Jeremy Clough.