Commercial Rent Arrears Recovery (A Guide!)

commercial rent arrears

IN THIS ARTICLE

The Commercial Rent Arrears Recovery (CRAR) procedure allows landlords in the UK to recover rent arrears by taking control of the tenant’s goods and selling them to cover the outstanding rent.

CRAR was introduced as part of the Tribunals, Courts and Enforcement Act 2007 and was enacted in April 2014, replacing the previous common law right of distress.

CRAR is an essential aspect of commercial property law in the UK, offering a structured approach for rent arrears recovery.

Understanding the legal framework and processes involved in CRAR is crucial for landlords and tenants in the commercial sector.

It provides landlords with a direct method of recovering unpaid rent without commencing court proceedings, which can be time-consuming and costly.

However, it’s governed by strict rules that must be adhered to, such as the requirement to serve a notice of enforcement and the limitations on the types of goods that can be seized.

Tenants must have a comprehensive understanding of CRAR to protect their rights and assets. They must know the procedures and legal protections, including the types of goods exempt from seizure and the notice period before enforcement action can occur.

By understanding these legal nuances, both parties can better navigate disputes related to rent arrears, avoiding the need for enforcement action and fostering a more cooperative landlord-tenant relationship.

Given the complexities involved, seeking professional legal advice is recommended to ensure compliance with the law and to navigate the CRAR process effectively.

 

Section A: Understanding Commercial Rent Arrears Recovery (CRAR)

 

1. What is Commercial Rent Arrears Recovery (CRAR)?

 

Commercial Rent Arrears Recovery (CRAR) is a statutory procedure in the United Kingdom that enables landlords of commercial properties to recover rent arrears by taking control of their tenant’s goods and selling them.

It’s a powerful tool for landlords under certain conditions, while for tenants, it highlights the importance of staying informed about their legal obligations and protections.

 

2. The Legal Framework for CRAR

 

The legislation governing Commercial Rent Arrears Recovery (CRAR) in the United Kingdom is primarily established through the Tribunals, Courts and Enforcement Act 2007, with detailed procedures and requirements in the Taking Control of Goods Regulations 2013.

 

a. Tribunals, Courts and Enforcement Act 2007
This Act provides the foundation for CRAR, introducing a more structured and fair approach to recovering commercial rent arrears. It outlines CRAR’s overall scope and establishes the framework within which the detailed procedures are defined.

 

b. Taking Control of Goods Regulations 2013
These regulations detail the process for implementing CRAR, including the requirements for notices, the procedure for taking control of goods, and the sale of goods to recover arrears. They provide practical steps and legal safeguards for both landlords and tenants.

 

Together, These laws form the legal basis for CRAR, which replaced the ancient right of distress for rent, modernising how landlords can recover rent arrears from commercial tenants.

The legal framework surrounding CRAR emphasises fairness and transparency in the recovery process, aiming to balance landlords’ and tenants’ rights and interests. It stipulates specific conditions under which the procedure can be initiated, including the modernising amount of rent that must be overdue and the timeline for issuing notices.

 

3. Legal Prerequisites for Initiating CRAR

 

CRAR exclusively applies to commercial property, and its use is subject to several strict conditions to ensure fairness and legality in its application.

To initiate CRAR, specific legal prerequisites must be met, ensuring the process is used fairly and appropriately. The critical conditions under which landlords can utilise CRAR include:

 

a. Written Lease Agreement
The lease must be in writing. CRAR can only be used against tenants under a written commercial lease.

 

b. Commercial Lease Agreement
The premises must be solely used for commercial purposes. CRAR cannot be applied to residential or mixed-use premises where the property is used for residential and commercial purposes.

 

c. Rent Arrears Only
CRAR can only be applied to rent arrears. This includes the basic rent, interest on unpaid rent, and any VAT on the rent. It does not extend to other sums due under the lease, such as insurance, service charges, or business rates.

 

d. Minimum Amount of Rent Arrears
Before CRAR can be invoked, a minimum amount of rent must be overdue. Initially, action can only be taken if the outstanding rent equals or exceeds the amount payable for seven days.

 

e. Notice of Enforcement
Landlords must give tenants a formal notice of enforcement, providing them with a clear opportunity to pay the outstanding rent before any action is taken.

The notice period is typically seven clear days (not including Sundays, Christmas Day, or Good Friday), giving the tenant a chance to settle their debt or reach an agreement before their goods are seized.

A certified enforcement agent must serve this notice and give the tenant a final opportunity to settle the arrears before their goods are seized.

 

f. Certified Enforcement Agents
Landlords cannot enforce CRAR themselves. The process must be carried out by enforcement agents certified under the Taking Control of Goods (Certification) Regulations 2013.

 

Section B: CRAR Process Step-by-Step

 

The CRAR process is governed by strict legal requirements to ensure it is carried out fairly and transparently, protecting the interests of both landlords and tenants.

Given the potential complexities and legal implications of the CRAR process, both parties are often advised to seek professional legal guidance to navigate the procedures effectively.

 

Step 1. Notice of Enforcement

 

Before taking any action, the landlord must ensure that the debt qualifies for CRAR (i.e., it is unpaid rent on a commercial property, excluding service charges, insurance, and other non-rent fees).

A formal Notice of Enforcement is prepared, informing the tenant of the landlord’s intention to recover the rent arrears through CRAR. A certified enforcement agent must serve this notice.

The notice must detail the amount of arrears owed and provide a clear deadline for payment. Typically, the tenant has seven clear days (excluding Sundays and bank holidays) to pay the outstanding rent.

This step is designed to allow tenants to settle their debts without further action.

 

Step 2. Engagement of Enforcement Agents

 

Only certified enforcement agents can carry out actions under CRAR. Landlords must engage agents certified under the Taking Control of Goods (Certification) Regulations 2013.

Enforcement agents act on behalf of the landlord to recover the unpaid rent by taking control of the tenant’s goods.

 

Step 3. Seizure of Goods Process

 

If the debt is not settled within the notice period, enforcement agents are authorised to enter the commercial premises, usually during daylight hours. They will have powers to take control of goods equivalent to the value of the rent arrears and associated costs.

The agents may enter into a Controlled Goods Agreement with the tenant, listing the items taken into control and preventing their removal or sale by the tenant.

Certain items may be exempt from seizure, such as tools, books, vehicles, and other equipment necessary for the tenant’s personal use in employment, business, or education, up to a combined value of £1,350.

 

Step 4. Sale of Goods and Recovery of Debts

 

Seized goods are valued and, if necessary, sold at public auction. To maximise the returns and ensure fairness, this process must be carried out as soon as possible, usually not before seven days after seizure.

The proceeds from the sale are used to cover the costs of the enforcement process, with any remaining funds applied towards the rent arrears. If there are surplus funds after the debt is settled, they are returned to the tenant.

Enforcement agents must keep detailed records of the enforcement, including the goods taken into control, the sale process, and the distribution of proceeds.

 

Section C: Rights and Responsibilities under CRAR

 

The Commercial Rent Arrears Recovery (CRAR) process in the UK establishes specific rights and obligations for both landlords and tenants, ensuring a balanced approach to recovering unpaid commercial rent. This legal framework also includes protections for tenants and places certain restrictions on landlords to prevent abuse of the process.

 

1. Rights and Obligations of Landlords

 

a. Right to Recover Rent Arrears
Landlords have the right to recover rent arrears from tenants through the seizure and sale of the tenant’s goods, provided the CRAR process is followed correctly.

 

b. Obligation to Provide Notice
Landlords must issue a formal Notice of Enforcement to the tenant, giving them seven clear days to pay the outstanding rent before further action can be taken.

 

c. Use of Certified Enforcement Agents
Landlords must use certified enforcement agents to carry out the CRAR process, and they need help to do so.

 

d. Restrictions on Seizing Goods
Landlords are restricted from seizing goods to a specific value essential for the tenant’s basic needs or business operations.

 

2. Rights and Obligations of Tenants

 

a. Right to Receive notice
Tenants have the right to be informed of the landlord’s intention to use CRAR and to be given a clear opportunity to pay the arrears before their goods are seized.

 

b. Protection of Essential Goods
Tenants are protected under CRAR, as certain goods essential for personal or business use cannot be seized.

 

c. Right to Reclaim surplus
If the sale of goods exceeds the amount owed in rent arrears and costs, tenants have the right to reclaim the surplus.

 

d. Obligation to Pay Rent
Tenants are obligated to pay rent as per their lease agreement. Failure to do so allows the landlord to initiate the CRAR process.

 

3. Protections for Tenants

 

a. Notice Period
The requirement for landlords to provide a 7-day notice period before enforcement action can commence offers tenants a final opportunity to settle their debts without losing their goods.

 

b. Exempt Goods
Certain goods are exempt from seizure under CRAR, including items necessary for the tenant’s personal use or for the business to operate up to a specified value. This ensures that tenants are not deprived of their means of livelihood.

 

c. Controlled Entry
Enforcement agents are subject to strict rules regarding when and how to enter premises to seize goods, protecting tenants from undue intrusion.

 

4. Restrictions on Landlords

 

a. Limitation on Debt Types
CRAR can only be used to recover rent arrears. Landlords cannot use CRAR to recover other charges, such as service charges, insurance, or maintenance fees unless they are explicitly included as rent in the lease agreement.

 

b. Certification of Agents
Landlords must use agents certified under the Taking Control of Goods (Certification) Regulations 2013, ensuring that the process is carried out by professionals adhering to legal standards.

 

c. Prohibited Times for Enforcement
Enforcement action cannot occur on Sundays, Christmas Day, or Good Friday and must typically be conducted during daylight hours.

 

Section D: Case Studies

 

Here are some hypothetical scenarios based on the principles and practices of CRAR to illustrate how it can be successfully applied and the challenges that might be encountered.

 

Hypothetical Example 1: Successful CRAR Action

 

Scenario: A commercial landlord in London has a tenant operating a retail business. The tenant falls into rent arrears equivalent to three months’ rent, citing cash flow problems due to a downturn in sales.

 

Action: After unsuccessful attempts to negotiate a payment plan, the landlord initiates CRAR. They engage a certified enforcement agency, which issues a Notice of Enforcement to the tenant, providing seven days to pay the outstanding rent.

 

Outcome: The tenant, unable to settle the arrears within the notice period, faces the seizure of goods by the enforcement agents. The goods are sold at auction, and the proceeds cover the rent arrears and the costs associated with the CRAR process. Considering the business’s current financial situation, the tenant negotiates a new payment plan for future rents.

 

Challenges and Solutions: The main challenge was the tenant’s initial inability to pay. The situation was resolved through the formal CRAR process, providing a clear debt recovery framework. The landlord and tenant subsequently agreed on a viable payment plan, demonstrating the importance of communication and negotiation even after initiating CRAR.

 

Hypothetical Example 2: CRAR with Complications

 

Scenario: In Manchester, a commercial landlord uses CRAR to recover unpaid rent from a tenant running a café. The tenant disputes the amount claimed and argues that some goods seized were essential to their business operation and should have been exempt.

 

Action: The enforcement agents proceed with the seizure of goods, including some kitchen equipment deemed non-essential for the immediate operation of the café.

 

Outcome: The sale of seized goods covers the rent arrears, but the tenant appeals the seizure of specific items, claiming they were essential for the business. The dispute is resolved through mediation, where it’s agreed that a portion of the proceeds from the sold goods will be used to replace the essential equipment, and the tenant is given a revised payment schedule for future rent.

 

Challenges and Solutions: The challenge arose from the tenant’s dispute over the classification of seized goods and the amount of rent arrears. The resolution involved mediation to ensure fair treatment of the tenant while still enabling the landlord to recover the owed rent. This example highlights the need for clarity and fairness in applying CRAR, particularly regarding what constitutes exempt goods.

 

Section E: Advice for Tenants to Avoid CRAR

 

For tenants, preparing for Commercial Rent Arrears Recovery (CRAR) involves understanding their rights and obligations under this legal process, taking steps to manage rent arrears and avoiding enforcement action.

Here’s a guide with advice on how tenants can prepare for CRAR and manage rent arrears effectively:

 

1. Understand Your Lease and CRAR

 

Familiarise yourself with the terms of your commercial lease, especially those relating to rent payments and arrears. Understanding the CRAR process and your rights under it is also crucial. This knowledge can help you navigate discussions with your landlord and take appropriate action if facing financial difficulties.

 

2. Communicate Early with Your Landlord

 

If you have difficulties paying rent on time, communicate with your landlord as soon as possible. Honest and early communication can open the door to negotiations for a payment plan or other arrangements that can prevent the initiation of CRAR.

 

3. Negotiate Payment Plans

 

Be proactive in proposing realistic payment plans that reflect your current financial situation. A payment plan can help manage arrears in a feasible way while also demonstrating to your landlord your commitment to resolving the situation.

 

4. Review Your Financial Management

 

Assess your business’s financial management and identify areas where costs can be reduced, or cash flow can be improved. This may involve reviewing expenses, prioritising payments, or seeking professional advice on financial management.

 

5. Seek Legal and Financial Advice

 

Consider consulting with a solicitor or a financial advisor specialising in commercial property and tenancy issues. They can provide legal advice on your situation, help negotiate with your landlord, and offer strategies for managing debt.

 

6. Government and Financial Support Schemes

 

Investigate whether you are eligible for government support schemes, grants, or loans designed to help businesses face difficulties. These can provide temporary relief and help you manage your rent obligations.

 

7. Understand the Notice of Enforcement

 

If you receive a Notice of Enforcement from your landlord, you have a limited time (usually 7 clear days) to pay the outstanding rent before enforcement action is taken. Use this time to engage with your landlord or seek advice on proceeding.

 

8. Protect Your Essential Goods

 

Be aware that certain goods are exempt from seizure under CRAR, including items necessary for personal use or for the business to operate up to a specified value. It’s important to know what these are in case enforcement action proceeds.

 

9. Responding to Enforcement Actions

 

If CRAR is initiated, you still have options. You can negotiate with the enforcement agents or landlord for more time to pay or challenge the enforcement if you believe it has been carried out improperly.

 

10. Consider Alternative Dispute Resolution

 

Consider alternative dispute resolution methods like mediation if there’s a dispute with your landlord about rent arrears or the CRAR process. These can offer a less aggressive and more cost-effective way to resolve disputes.

 

Section F: Alternatives to CRAR

 

While Commercial Rent Arrears Recovery (CRAR) provides a direct mechanism for landlords to recover unpaid rent from commercial tenants by seizing goods, several alternative methods exist for addressing rent arrears.

These alternatives can be more appropriate in certain situations, depending on the tenancy circumstances, the relationship between the landlord and tenant, and the issues leading to the arrears.

For example, when maintaining a positive landlord-tenant relationship is crucial, where the tenant’s financial difficulties are temporary or can be managed with adjustments, or where CRAR might not be the most effective or appropriate tool for debt recovery, alternatives to CRAR should be explored.

These methods can provide more flexible, less confrontational means of addressing rent arrears, potentially preserving the tenancy and avoiding the need for legal proceedings or the seizure of goods.
They also allow for more nuanced solutions tailored to the specific circumstances of the tenant and landlord.

Alternatives to CRAR include:

 

1. Mediation

 

Mediation involves a neutral third party helping landlords and tenants to reach a mutually acceptable agreement regarding the rent arrears. It’s a confidential process that encourages open communication and problem-solving.

This method is particularly suitable when the landlord and tenant have a good underlying relationship and are interested in continuing the tenancy. It can lead to creative solutions that address the tenant’s ability to pay while satisfying the landlord’s need to recover owed rent.

 

2. Negotiation

 

Direct negotiation between the landlord and tenant can also resolve rent arrears. This might involve agreeing on a payment plan that allows the tenant to pay off the arrears over time or temporarily reduce the rent.

Negotiation is a good option when both parties are willing to engage in dialogue and find a practical solution. It’s particularly effective if the tenant’s financial difficulties are temporary and the landlord values retaining the tenant in the long term.

 

3. Litigation

 

Landlords can initiate legal action through the courts to recover rent arrears. This could involve suing for the outstanding rent or seeking a court order for the tenant to vacate the property.

Legal action is more formal and adversarial, appropriate when other methods have failed or the tenant refuses to discuss the arrears. It’s also suitable in cases where the tenant’s breach of the lease terms goes beyond unpaid rent.

 

4. Drawing on a Rent Deposit

 

If a rent deposit was made at the start of the tenancy, landlords can draw from this deposit to cover the unpaid rent. The tenant is usually required to replenish the deposit after such a withdrawal.

Utilising a rent deposit is straightforward if the lease agreement allows for it in cases of rent arrears. It’s a quick way to recover some or all of the owed rent without immediately resorting to more disruptive measures.

 

5. Guarantor Claim

 

For leases with a guarantor clause, landlords can approach the guarantor to cover the rent arrears. A guarantor is typically a utility that agrees to pay the rent if the tenant fails.

This option is appropriate when the tenant cannot pay, and a responsible guarantor can cover the arrears. It’s also a less aggressive initial step than CRAR or legal action.

 

FAQs on Commercial Rent Arrears Recovery (CRAR)

 

Q. What is CRAR, and how does it work?

CRAR is a legal process that allows landlords of commercial properties to recover rent arrears by taking control of and selling the tenant’s goods. It was introduced under the Tribunals, Courts and Enforcement Act 2007 and is detailed in the Taking Control of Goods Regulations 2013.

 

Q. When can CRAR be used?

CRAR can only be used for commercial properties with a written lease agreement. It applies only to rent arrears, excluding other charges like service charges and insurance, unless these are explicitly included as part of the rent in the lease agreement. Before CRAR can be initiated, there must also be a minimum amount of rent overdue.

 

Q. What is the notice period for CRAR?

Landlords must give tenants a Notice of Enforcement, which provides a 7-day warning period to pay the outstanding rent before any action is taken to seize goods.

 

Q. Are there any items that cannot be seized under CRAR?

Yes, certain items are protected and cannot be seized. These include items necessary for the tenant’s personal use or business, such as tools, books, vehicles, and equipment up to a specified value.

 

Q. Can CRAR be used to recover rent from a residential property?

CRAR is specifically designed for commercial properties and cannot be applied to residential properties.

 

Q. What are the landlord’s obligations under CRAR?

Landlords must strictly follow the CRAR procedure, which includes issuing a Notice of Enforcement, using certified enforcement agents, and not seizing exempt goods. They must also ensure that only rent arrears are being recovered under CRAR.

 

Q. What rights do tenants have under CRAR?

Tenants have the right to receive the Notice of Enforcement, which allows them time to pay the arrears and avoid having their goods seized. They also have protections around certain goods that cannot be seized and the right to claim any surplus money if their goods are sold for more than the arrears and costs.

 

Q. Can a tenant dispute the CRAR process?

Yes, tenants can challenge the CRAR process, especially if they believe it has been applied incorrectly or unfairly. Tenants should seek legal advice if they wish to dispute the process.

 

Q. How does CRAR affect the tenant’s credit rating?

The CRAR process itself does not directly impact a tenant’s credit rating. However, if the rent arrears lead to further legal action or a court judgment against the tenant, this could affect their credit score.

 

Q. Can CRAR be stopped once it has started?

The CRAR process can be halted if the tenant pays the outstanding rent in full before their goods are sold. Also, landlords might stop the process if an alternative agreement is reached with the tenant.

 

 

Author

Commercial Rent Arrears Recovery (A Guide!) 1

Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.

Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing Agency for the Professional Services Sector.

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