To read more about our response to Covid-19, click here

News & Events

Property News

Restriction on Commercial Rent Arrears Recovery (CRAR)

Posted on 7th May 2020

By Laura Smallwood

The availability of Commercial Rent Arrears Recovery (CRAR) has been restricted, further limiting commercial landlords’ options for recovery against defaulting tenants in the current crisis, whilst affording breathing space to tenants.

An item posted by the writer on 7th April in relation to the moratorium on forfeiture of business tenancies for non-payment of rent imposed by s.82 of the Coronavirus Act 2020 (“the 2020 Act”) noted that a commercial landlord’s ability to pursue other remedies for non-payment of rent was not restricted. One of these remedies is CRAR (Commercial Rent Arrears Recovery), which since 2014 has replaced the common law remedy of distress. However, in response to concerns that some landlords have been using ‘aggressive debt recovery tactics’, the government has now amended CRAR to prevent its use unless a minimum of 90 days’ rent is outstanding.

The CRAR Regime
The CRAR scheme, set out in Part 3 and Schedule 12 of the Tribunals, Courts & Enforcement Act 2007 and accompanying secondary legislation, provides a self-help remedy whereby landlords under a lease of entirely commercial premises may instruct enforcement agents to recover a tenant’s goods and sell them in order to satisfy rent arrears. Various requirements must be met, including that the net unpaid rent (i.e. less VAT and interest) must be at least the minimum amount prescribed, hitherto equal to 7 days’ rent, both when notice of enforcement is given and the first time that goods are taken control of after the notice.
CRAR does have some drawbacks, including the requirement to forewarn the tenant by giving at least seven clear days’ notice of enforcement, and its application only to true rent, in the sense of payment for the use and occupation of premises. Other sums which may be reserved as rent, such as insurance or service charges, are not included. Nonetheless, it provides an additional useful weapon in the landlord’s armoury whilst the right to forfeit for non-payment of rent is suspended.

Amendment to CRAR
With effect from 25th April 2020 however, the Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020 (SI 2020/451) amend the Taking Control of Goods Regulations 2013, so that where a notice of enforcement is served on a tenant during the period when the moratorium on forfeiture is in force (currently until 30th June), CRAR may only be exercised where the minimum amount of net unpaid rent is equivalent to 90 days’ rent.

Points to Note
● The significant increase in the amount of unpaid rent before CRAR may be used marks a further narrowing of options open to landlords to recover their rental income, but provides financially vulnerable tenants with valuable breathing space;
● The government’s intention to introduce measures in the Corporate Insolvency and Governance Bill temporarily banning the use of statutory demands and winding up petitions where a company cannot pay its bills due to coronavirus, will soon reduce the room for manoeuvre against defaulting tenants still more;
● Debt proceedings remain available and are unlikely to be restricted, but lack the teeth of the remedies which have recently been and are about to be eroded by statutory intervention;
● The Court of Appeal has confirmed in Thurunavukkrasu v Brar [2019] EWCA Civ 2032 that pursuing CRAR is an unequivocal act affirming the continued existence of a lease, and accordingly amounts to a waiver of forfeiture, even if the CRAR is not lawful because the landlord has failed to comply with the required procedure;
● However, this authority must be viewed in the context of s. 82(2) of the 2020 Act, which provides that during the current ‘relevant period’ (26th March - 30th June) only an express waiver in writing is to be regarded as a waiver. This suggests that a landlord could proceed to forfeit a lease after 30th June, despite having already attempted to exercise CRAR during the previous three months.
● Another change to the 2013 Regulations assists landlords by extending the twelve month period within which an enforcement agent must take control of goods after notice of enforcement is given. Where the ‘relevant day’ (defined as the date one calendar month before expiry of the twelve month period) was either between 26th February and 26th March 2020 or falls during restrictions, the period now starts one month after the relevant day.

 

If you require advice, or representation, in a claim relating to land or property you can instruct Laura Smallwood by contacting her clerks on 01483 539131 or emailing them at clerks@guildfordchambers.com

 

Disclaimer

This article has been provided free of charge for information purposes only. Although care is taken to ensure the information is accurate no responsibility is assumed by the author or any member of Guildford Chambers for reliance on the content or the accuracy of such content. The information, and/or commentary, does not constitute legal advice and if you have a legal dispute you should seek advice from a solicitor or barrister about your case. Accordingly, no member of Chambers shall be responsible for any action you take or refrain from taking in reliance of anything in this article or case summary.