Six months ago, the age-old landlords’ remedy of distress for rent arrears was abolished and replaced with commercial rent arrears recovery (CRAR).
This is a fitting moment to take stock and examine how the new system is working.
Like distress, CRAR allows a landlord to enter the premises let to its tenant whenever there are rent arrears, take control of the tenant’s goods, sell them and apply the sale proceeds towards the arrears. However, this is where the similarities end.
One of the most controversial points for landlords was the new requirement to give the tenant advance warning. Once there are rent arrears equivalent to at least seven days’ rent, the landlord may instruct an enforcement agent to start the process. The enforcement agent must serve an entry notice on the tenant, giving at least seven clear days advance warning that they intend to exercise CRAR.
Landlords were concerned that less scrupulous tenants would use the opportunity to remove their goods from the premises. The purported solution provided is that the tenant’s goods remain bound by the CRAR process from the moment that an entry notice is served.
In practice, this may not provide protection. As the enforcement agent is not entitled to enter the property to take an inventory until the notice period has expired, they have no way of knowing what goods the tenant had in the property when the notice was served. There is no express sanction in the legislation for a tenant who intentionally removes goods.
The good news is that landlords have reported that tenants generally settle up once an entry notice is served. Perhaps tenants are persuaded to settle rather than face the potentially hefty fees that enforcement agents are entitled to charge if they enter the property at the end of the notice period, as these fees must be specified on the entry notice for tenants to see.
So, while CRAR has not yet proved to be the disaster that many landlords feared, it is only a matter of time before tenants become savvy to the various pitfalls of the new procedure. To date, there have been no reported cases on the CRAR regime but watch this space — there are plenty of areas ripe for dispute.
Shanna Davison is an associate, real estate disputes, at Hogan Lovells.