Landlords beware……
Earlier this year the Ministry of justice began a consultation intended to discuss the way landlords recover rent arrears from tenants, and specifically the use of bailiff action. The pivotal issue for commercial property landlords and their management teams is the potential for enforcement of the provisions to abolish distress for rent and to replace it with a procedure known as CRAR. This will immediately change the process by which goods are seized or controlled on the implementation of recovery of rental arrears by way of distress.
The Ministry of Justice could implement the CRAR proposals as early as October 2012.
The key aspects of CRAR are as follows;
- Only authorised Enforcement agents who are trained and certified can exercise CRAR requirements on recovery of arrears.
- Only proper rent can be recovered (plus VAT & interest). Service charge or insurance premiums etc are not included.
- The CRAR requirements apply only to commercial properties and not mixed-use. Therefore landlords may seek separate leases for the commercial and residential elements of a property.
- The minimum amount that can be recovered via the CRAR rules, the net unpaid amount, is not to be below the equivalent of 7 days arrears.
- Landlords will be required to serve a notice of enforcement on the tenant giving 14 clear days’ notice (as opposed to 7 clear days for other debts) before instigating CRAR. However court consent for earlier action can be sought if it likely that goods will be removed.
- Taking control of goods can be done by either removing and storing securely off the premises, a controlled goods agreement, or securing goods on the premises.
- Entry can only be by a door or other usual means. So windows can no longer be used. And only between 6am and 9pm (except for businesses trading outside these hours).
There has been a very long history of CRAR going back to 1998 so there are no assurances that these changes will actually get to implementation. But if they do it will significantly curtail a landlord’s ability to recover rents (and amounts reserved as rent) and our opinion is that this will lead to a significant increase in the use of rental deposits and guarantees.
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