Rent Arrears Recovery for Commercial Property

CRAR, which stands for Commercial Rent Arrears Recovery, is only available to landlords of written leases of commercial premises. CRAR is not available where premises are let or occupied as a dwelling (unless such residential occupation is in breach of a lease). For example, it is not available to landlords of shop premises with flats above within the same lease. Property owners may therefore wish to consider letting such premises on separate residential and commercial leases in order to preserve the CRAR remedy.

CRAR can only be used to recover rent, VAT and interest. It is not applicable to recovering other sums such as service charges or insurance, irrespective of whether they are reserved as rent. Where a rental figure is expressed to be inclusive of such sums, only the proportion reasonably attributable to the possession and use of the premises is recoverable under CRAR.

Before CRAR is exercised, 7 clear days’ notice of enforcement (in prescribed form and calculated excluding Sundays, Christmas Day, Good Friday and Bank Holidays) must be given to the debtor. The court can however order that the notice period be shortened where it is satisfied that without such order it is likely the goods will be moved to avoid being seized

The court has the power to set aside a notice of enforcement or order that further steps cannot be taken under CRAR without authorisation of the Court.

CRAR can only be exercised if the outstanding sum (less interest due under the lease, VAT and any set-off a tenant is entitled to make) exceed the minimum amount of 7 days’ rent.

The enforcement agent exercising CRAR (who must be certificated) is only permitted to take control of goods belonging to the debtor (previously, in some circumstances, goods belonging to third parties could be distrained). Goods which are necessary for the debtor’s personal use or in connection with employment, business, trade, profession, study or education are exempt up to an aggregate value of £1,350. Items in use by the debtor may not be taken control of if such action is likely to result in a breach of the peace. The enforcement agent may not take control of goods which have a value which is more than the debt together with costs. They must wait at least 7 days before sale can take place and also give 7 clear days’ notice of sale to the debtor unless the goods would otherwise become unsaleable or their value substantially reduced.

Sub-tenants

Under the current law of distraint, “diversion” notice can be served by a landlord on a sub-tenant directing that the sub-tenant pay his rent direct to the landlord in order to discharge the immediate tenant’s arrears of rent.

From 6 April 2014, where the superior landlord has the right to exercise CRAR against his tenant and there is a sub-lease in place, the superior landlord has been permitted instead to serve notice on the sub-tenant requiring the sub-tenant to pay its rent direct to the superior landlord.

Such notice will take effect 14 clear days after service on the subtenant and will transfer to the superior landlord the right to recover, receive and give a good discharge for any rent which is paid by the sub-tenant under his sub-lease.

If the sub-tenant makes a payment under such a notice then he may deduct that amount from the rent that he would otherwise pay to his immediate landlord i.e. the defaulting intermediate tenant. If there is a chain of underleases the deduction is passed up the chain.

If the sub-tenant who has been served with notice fails to pay the amount claimed in the notice the landlord may exercise CRAR against the sub-tenant. However, the landlord cannot seek to recover the amount due from the sub-tenant by serving a further notice on an inferior tenant of the sub-tenant.

If you wish to discuss any of the issues arising from this article, please do not hesitate to contact our specialist commercial property team on FREEPHONE 0800 975 8091