Commercial Rent Arrears Recovery (CRAR) – An Overview

A landlord of commercial premises has a right to recover rent arrears by taking control of a tenant’s goods and selling them. This is established in the new statutory regime Commercial Rent Arrears Recovery (CRAR) introduced by section 72 of the Tribunal, Courts and Enforcement Act 2007 (the 2007 Act). CRAR replaces the old right of distress and makes it harder for landlords to recover arrears.

Contrary to the former regime, CRAR only applies for premises wholly commercial in use, excluding the mixed-use or residential lease. CRAR’s main purpose is to recover outstanding rent without the Landlord needing to go to the court. However, this procedure cannot be used to recover other sums due from the tenant (service charges, rates, repairs or insurance are not recoverable even if reserved as rent under the lease). As a result, the Landlord now has a limited ability of recovering both principal rent and service charges, since each requires a different means of enforcement. It must be possible to calculate the rent due with certainty, and at least 7 days’ of rent must be outstanding before CRAR can be exercised.

Contrary to the former regime of distress, CRAR can only be used under specified conditions. According to Schedule 12 of the 2007 Act, a Landlord must authorise an enforcement agent to exercise the rights on the Landlord’s behalf. A notice of enforcement, containing prescribed information, must be given to the Tenant at least 7 days before goods are taken. This minimum period between seizure of the goods and sale under the new regulation is extended from 5 to 7 days. The rent must still be unpaid at the time the notice is served, as well as immediately before any goods are seized. The Tenant must also be given 7 days’ notice regarding the date, time and place of the sale auction of the goods that are seized. This however enables the Tenant to remove goods from the premises, or enter into insolvency before the end of the notice period. If the court is satisfied that the Tenant is likely to move goods to other premises to escape the effect of CRAR, this period of notice can be modified. The tenant can also apply to the court to have the CRAR delayed or set aside.

CRAR can be exercised if the landlord’s interest is jointly owned any joint owner may recover the rent. If the landlord’s interest is mortgaged, the mortgagee will be entitled to exercise CRAR if notice is given of intention to take possession or enter into receipt of rent and profits, and the Lease is binding on the mortgagee.

CRAR only applies where possession of the goods were taken before the lease ended, or rent was due and payable before the lease ended. On top of this, the following conditions must be satisfied: the lease must be in writing (unwritten leases or licences will not qualify), the lease must not have ended by forfeiture, no more than 6 months have passed since the lease ended, the rent was due before the lease expired, the tenant remains in possession of any part of the demised premises, and the landlord at the end of the lease remains entitled to immediate reversion.

In the case of a sub-lease, the superior landlord may serve a notice on the sub-tenant requiring the sub-tenant to pay rent directly to the superior landlord. The notice must set out the amount of the arrears owed to the superior landlord and takes effect 14 days after it has been served.

The new statutory procedure seems to put the landlord in a less favorable position than the former common law right of distress as the new procedure only applies in precise circumstances. In addition, any contractual provision intended to counteract the CRAR procedure is void.

Other remedies are still available, such as forfeiture or a claim for debt, as well as negotiated protection, such as guarantees and rent deposits. However, if a landlord exercises the CRAR, he will waive any right to forfeit that may have arisen.

share this Article

Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp
Share on email

Recent Articles