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Distressing changes

wantspacegotspace.co.uk - Distressing changesThe Government has recently announced a significant shake-up of the rules governing the collection of rent arrears from tenants reports commercial property agent Prop-Search.

Responding to its consultation on reforms to the bailiff industry, issued in February 2012, the Government has said that it plans to implement the delayed Part 3 of the Tribunals, Courts and Enforcement Act, which received Royal Assent in 2007.  This will trigger the introduction of a new procedure for Commercial Rent Arrears Recovery (CRAR), which will severely limit landlord’s rights to levy distress.  The earliest this is likely to be implemented is Summer 2013.

Under the current rules, commercial landlords can levy distress for outstanding rent against goods and chattels that are on the land granted by the lease.  In some limited circumstances, landlords can even distain against goods on other land, for example, where the tenant has fraudulently removed the goods in order to prevent the landlord from distaining them.

The current process is straight forward.  The landlord will usually instruct a certified bailiff to seize moveable goods to the value of the outstanding rent.  The bailiff must enter the premises at a reasonable time between sunrise and sunset and in a lawful fashion.  If the bailiff finds goods at the premises to satisfy the arrears, the tenant is usually invited to enter into a ‘walking possession agreement’ which lists the goods and allows the tenant five days in which to pay the arrears.  If the tenant fails to pay, the bailiff will re-attend and remove the goods to sell a public auction.

Samantha Jones, a Surveyor at Prop-Search, says: “The introduction of CRAR will create a statutory right to cover rents instead and commercial landlords will have to serve a notice of enforcement on the tenant, giving then the benefit of seven workings days before bailiffs can attend.  The short, sharp shock of distress will therefore be lost.  The tenant will be able to apply to set aside or stay enforcement once it receives the enforcement notice.

Commercial landlords will only be able to use the CRAR scheme when the tenant has failed to pay ‘pure rent’ including VAT and interest on rent.  This means service charge arrears and insurance premiums cannot be recovered under the new scheme, even if they are reserved as ‘rents’ under the lease.  

Samantha adds: “Having to provide the tenant with notice could also enable tenants to remove goods from the property before the bailiffs attend.  The court can reduce the period of notice if there is a concern that the tenant will avoid enforcement if given too much notice, but having to make such an application to court will also increase the landlord’s legal costs.”

Whilst CRAR is similar to the remedy of distress it does narrow the scope of the remedy.  The new remedy will not be available where only a nominal amount of rent it outstanding; a minimum amount will be set by regulations before the remedy can be used.  Landlords will also be disappointed to find that CRAR is not available if the leased premises include a residential element.  To remedy this, landlords might consider splitting their premises into separate commercial and residential lettings.

The natural concern at a time of economic worries if that these changes could force commercial landlords to use more expensive routes of recovery such as litigation or insolvency.  It could also lead to higher rent deposits being sought or more robust guarantees.

Posted by The Editor (wantspacegotspace) on 1st July 2013 (updated 08/07/2013)

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