New protection for commercial tenants in rent arrears

Remedy of distress abolished and replaced with new scheme for commercial landlords to recover rent arrears.

As of 6 April 2014, the remedy of distress was no longer available to commercial landlords as a method of recovering rent arrears. The common law remedy of distress was an ancient one, which allowed a landlord to enter a tenant’s property unannounced and seize their goods. They could then retain them until the rent arrears were paid or sell them to recover the loss of rent.

But this method has now been replaced by the Commercial Rent Arrears Recovery (CRAR) scheme, which will provide landlords with a statutory right to recover rent arrears. The difference is this can only happen through the use of a prescribed procedure and in specific circumstances.

It is important to note that there are some major differences between the old remedy of distress and the new scheme.

Firstly, CRAR applies only to commercial premises so landlords have no rights against property occupied or let for residential use.

Secondly, a seven-day notice period has been introduced before the landlord can seize any goods. This prevents any unwelcome and unexpected visits from bailiffs.

Thirdly, the seizure of goods can only be carried out by an authorised bailiff, so landlords cannot take matters into their own hands.

Finally, landlords are only entitled to cover arrears of rent and nothing more. Solicitors acting for commercial landlords in the past have tried to get around this requirement by cleverly drafting leases to include service charge, VAT and insurance premiums under rent. Under the new scheme, these loopholes will have little to no impact on what can be recovered.

On the face of it, the introduction of CRAR clearly holds some major benefits for tenants. They no longer have to be wary of uninvited landlords turning up at any time to see what they can seize in order to settle debts. The new regime has tightened the leash on when the statutory right to recover arrears applies and how it can be carried out.

But tenants should be warned about the knock-on effect that CRAR will have commercially. If landlords know that arrears will be harder to recover, they are more likely to ask for higher security from commercial tenants such as guarantors and increased rent deposits. The commercial lettings market may also be affected generally with landlords becoming more careful as to who they choose to let to. It is unlikely that they will want to take more risks with tenants if there is every chance that they will not be able to recover money owed to them. This may leave them with no choice but to forfeit the lease, destroying any chance they have of recovering anything.

There are bound to be mixed reviews about the introduction of CRAR but the new regime will greatly impact the relationship between the commercial landlord and the commercial tenant.