What is CRAR (recovery of commercial rent arrears)?
During the process of managing a property, a landlord may be confronted with unpaid rent by a tenant. In business tenancy agreements, there is a specialised recovery framework that allows arrears to be recovered by enforcement action. This is the procedure for recovering commercial rent arrears (known as CRAR).
Earlier the common law regime of distress was a self-help remedy originally available to landlords whose tenants had fallen behind on rent payments, permitting them to enter the leased premises and seize and sell goods up to the value of the monies owed with no prior notice or court order. Although this was a quick, effective, and inexpensive remedy for landlords, it was deemed to be excessively tough for tenants, leading to the decision to abolish this privilege and replace it with a new one.
On April 6, 2014, as part of wider reforms introduced by the Government the ancient common law right of distress for rent was abolished and replaced by a new statutory procedure known as Commercial Rent Arrears Recovery or CRAR.
Commercial rent arrears recovery scheme
Commercial Rent Arrears Recovery (CRAR) is a new statutory procedure that allows landlords of commercial property to recover rent arrears by taking control of the tenant’s goods and selling them
What is CRAR?
Commercial Rent Arrears Recovery (CRAR) is a statutory procedure that allows commercial property owners to recover rent arrears by taking control of the tenant’s goods and selling them. CRAR went into effect on April 6, 2014, and it applies to all new and existing commercial leases from that day forward.
How does CRAR apply?
- CRAR only applies to premises for commercial use – not for mixed-use or residential lease use.
- CRAR can only recover principal rent – it cannot recover other charges like service charges and insurance premiums.
- CRAR can only be carried out by Certified Enforcement Agents.
Landlords | Enacting the CRAR Procedure
A landlord must give 7 days’ notice of enforcement before using CRAR. Certified Enforcement Agents (as opposed to other sorts of bailiffs) may enter the property (through an open or unlocked door) to seize the goods once this period has expired.
CRAR applies whether or not reference is made to it in the lease
Sub-tenants | Using a legislative system similar to CRAR, landlords can still demand sub-tenants to pay rent directly to clear any rent arrears (but 14 days’ notice is required rather than 7).
Anti-avoidance | To prevent landlords from modifying, changing, or substituting the CRAR method in order to recover rent arrears, anti-avoidance provisions have been put in place. The CRAR method must be followed by landlords. Any alternative technique is null and void, as well as potentially illegal.
How to enact the CRAR process?
Before pursuing a business tenant for unpaid rent, keep the following in mind:
- At the time the notice is delivered and at the time of enforcement, the arrears must be at least seven days old.
- You do not have the authority to seize your tenant’s belongings; only a certified enforcement agent has such authority.
Once you’ve found an authorised enforcement agent, you’ll need to fill out a Warrant of Control form so they can start working on your case. The enforcement agent will then take control of the situation, initially issuing a seven-day notice to your tenant.
If the rent is not paid at the time of enforcement, the agent will enter the property and seize specified items on the premises, which will be auctioned off.
Who can use CRAR?
As a general rule, only landlords of commercial properties when the tenant is still using their property can use CRAR. A written lease is also required. A contractual right to occupy is insufficient.
Before any action can be taken, a minimum of 7 days’ rent must be owed, and a notice of enforcement containing prescribed information must be provided to the tenant at least 7 clear days before any goods are taken. If there is a risk of tenants removing things from the premises, you can ask the court to shorten the notice time (e.g., during insolvency).
Other requirements of CRAR include:
- Details must be included in the notice served on the tenant
- The notice must be served in a specific way
- The time limit for seizing goods from the notice being served (12 months)
- Goods can only be seized at certain times
- Only certain types of goods can be seized (and an inventory must be made)
- Goods seized must be valued and not be sold for at least 7 days
Can a forceful entry be made by the enforcement agents into commercial property?
After the 7 days, Certificated Enforcement Officers can forcefully enter the premises and take control of goods equal to the sum of the rent owed.
An officer will assess the premises and assets that could be collected to offset the cost through a controlled goods agreement. They will then auction off the products to recoup some or all of the amount due by business tenants.
Instead of removing the goods right away, a Certificated Enforcement Officer can draw up a thorough repayment plan to satisfy the amount. As a result, you can keep the tenant in your commercial space.
If the tenant has no assets that could be liquidated to recover your debt, you must advance to the next stage of the legal process.
How to recover rent arrears from commercial tenants who have a licence?
To recover rent arrears from commercial tenants under a licence you will need to issue a County Court claim and then enter judgment.
Can a commercial tenant’s assets be seized at other locations to pay rent arrears?
In the normal circumstances in the CRAR procedure, assets can only be seized at the address on the lease. But a County Court judgment gives the flexibility to enforce at any address of the commercial tenant’s business where goods are located.
What can the landlord seize to cover commercial rent arrears?
As with all enforcement action, there are limits to what goods can be taken into legal control. These are set out in the Taking Control of Goods Regulations 2013.
Summing-up
If you are a landlord and you’d like to learn more about Commercial Rent Arrears Recovery and how Shergroup enforcement can help you, get in touch with our team today.
We advise prompt action as the longer you wait the harder it can become to collect the outstanding rent. Shergroup uses a combination of enforcement, legal and insolvency strategies to get our clients paid. We can help you with any paperwork by enlisting the help of one of our business solution advisors, who will be happy to talk to you about your situation. The good news is that directing Shergroup to initiate the rent collection process is completely free. The rest of the fees can be recovered on a “no win, no fee” basis.
We may be able to recover overdue invoices on the same “no win, no-cost” basis for businesses whose landlords are pursuing them for commercial rent payment. We can also provide invoice lending options for businesses that require additional capital fast. So, don’t lose hope, call us for assistance and we’ll help you enforce the CRAR notice and recover your rent arrears.
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