Currently if rent is owed by a commercial tenant then the landlord can exercise his right of distress. This allows a landlord to hire a civil enforcement agency to seize property from the premises in order to recover the money owed as rent. The landlord currently does not have to give the tenant any warning or notice before exercising this right.
However, it is anticipated that in October of this year, the Tribunals Courts and Enforcement Act 2007 will come in to force. The Act abolishes the remedy of distress and replaces it with a statutory procedure known as the Commercial Rent Arrears Recovery procedure (“CRAR”).
Under CRAR the net amount of rent outstanding must exceed a minimum of seven days rent (excluding interest, VAT and other permitted deductions). Whilst this amount may be subject to change, CRAR will allow a commercial landlord to instruct an enforcement agent formerly known as a bailiff to take control of goods at the premises or to collect rent up to the value of the arrears.
Under CRAR the landlord may secure the goods on the premises or on a public highway, secure goods under a controlled goods agreement or by removal of goods from the premises. Once in force CRAR will apply to all leases retrospectively and is designed to be a human rights compliant system. It is however viewed by many landlords that CRAR will effectively make the recovery of rent arrears more difficult as CRAR only allows the landlord a remedy for pure rent arrears and not service charges or other payments even if reserved as rent in the lease. In addition the landlord must also serve 14 days written notice on the tenant prior to taking steps to recover goods unless there is a reasonable chance that the tenant will try and dispose of the goods.
If the CRAR procedure is not effective then we anticipate there will be a rise in litigation as well as landlords having to rely more on authorised guarantee agreements, guarantees and rent deposit deeds.