Commercial Rent Arrears (CRAR)
Commercial rent arrears recovery (“CRAR”) replaces the old common law doctrine of distress. It allows a landlord to recover rent arrears by seizing the tenant’s goods and holding or selling them.
Under the old rules of distress, landlords had the right to catch tenants by surprise since no prior notice or court order was needed. This was an effective tool for landlords, and meant that tenants could not effectively hide and put assets out of the landlord’s reach. Under the CRAR regime, landlords are required to follow a stringent process and adhere to strict procedures.
When can CRAR be used?
CRAR can only be used to recover principal rent together with any associated VAT or interest. It does not apply to services charge, rent premiums or other outgoings. Even before CRAR can be exercised, there needs to be a minimum rent arrears period equivalent to seven days’ rent. It is important to note that initiating CRAR may mean the landlord has waived its entitlement to pursue an alternative remedy, such as forfeiture.
The landlord must allow seven clear days’ notice (excluding Sundays and bank holidays) before the procedure can pursued. The requirements of the form of notice are strict and must be followed or the notice may be invalid. This is one aspect where the regime differs widely from the old doctrine of distress, and potentially make enforcement difficult. The tenant may have sufficient time to move goods out of the reach of the landlord or enter into insolvency before the end of the notice period. However, the landlord can apply to the court to have the notice period reduced if it is shown there is a risk that the tenant may remove goods.
Tenant’s right to appeal
The tenant has the right to apply to the court for an order that no further steps may be taken under CRAR without further permission of the court.
IS CRAR the right procedure for you?
CRAR can apply be exercised by the immediate landlord under a lease and only applies to a property that is wholly commercial, meaning it cannot be a mixed-use property. Any goods owned by the tenant can be seized, except work tools with an aggregate value up to £1,350.00.
A landlord can still require a sub-tenant to pay directly to him for the default of the landlord’s tenant. However, this involves a separate procedure with notice requirements to follow.
We advise obtaining legal representation if you are considering initiating the CRAR procedure.
We will discuss whether this is the most appropriate remedy bearing in mind your circumstances and aims.