Why commercial tenants need to understand CRAR

It used to be the case pre 6th April 2014 that if a tenant of a commercial premises was in arrears, the landlord had the option to send in a certified bailiff to take goods in order to enforce payment of the rent. However, things changed when the relevant part of the Tribunals Courts and Enforcement Act 2007 came into force as it stipulated that arrears could no longer be claimed by distress but only under the Commercial Rent Arrears Recovery procedure or more commonly known as CRAR.

It’s important to note that there are some key differences between the former distress procedure and CRAR. These include the minimum sum owed, whether the property is mixed use or purely commercial, the required length of notice prior to entry, the time of day a property could be entered as well as how seized goods could be sold. These changes are complex but vital to understand

However, there are a number of issues that jump out. For example around advance notice as the change means that a tenant will have had warning so could - in theory - make sure there is little left by the time the agent enforces the CRAR. Most landlords have told me this is the principal drawback with CRAR. Also, CRAR is only exercisable if the net unpaid rent is at least the minimum amount immediately before the time when notice of enforcement is given or the first time the goods are taken control of after the notice. Finally, unpaid rent is the amount of rent in respect of which CRAR is exercisable less any interest or VAT included in the rent arrears; it does not include enforcement costs.

It goes without saying that enforcement agents need to obey by the rules. We have acted for several tenants who were in rent arrears at the time of the notice, but who had paid the arrears by the time the control of goods took place but had not paid the enforcement agent’s costs. This meant the enforcement agents were acting unlawfully just because their costs had not been paid. The recent case of Rooftop South West Ltd & Ors v Ash Interiors (UK) Limited & Ors made it clear that enforcement is not a blank cheque or licence for agents to act with impunity. They must operate in accordance with the law at all times and any attempt to enforce payment of the compliance stage fee - and any further costs at a point when the net unpaid rent has been paid - is unlawful .

The main question we keep getting asked by tenants is: What are my options if an enforcement agent does not act in accordance within the rules? Well, all you can do is seek damages through the courts for losses suffered and for an order for return of goods.

In practice where the agents have exercised their powers unlawfully a well drafted letter from a solicitor threatening to take proceedings will normally stop them in their tracks but it is important that it is done before the control or seizure of goods takes place. You should also be aware that the cost of the solicitor drafting and sending the letter may not be recoverable under the small claims procedure (assuming the claim or value of the goods ceased is under £10,000) but it is money well spent if it stems greater losses and aggravation. 

If you would like more information on commerical leases or any aspect of commercial property please do not hesitate to contact me David Leviten.