Latest Position on Commercial Rent Arrears Recovery (CRAR) procedure

Latest Position on Commercial Rent Arrears Recovery (CRAR) procedure

What is the latest position on the coming into force of the Commercial Rent Arrears Recovery (CRAR) procedure? Lisa Faulkner, solicitor, considers what the introduction of the new rules could mean for landlords and their lawyers.

Original news

Tribunals, Courts and Enforcement Act 2007 (TCEA 2007)

The TCEA 2007 received Royal Assent on 19 July 2007. Part 3 of the TCEA 2007, which is still not yet in force, introduces the statutory procedure for taking control of goods. The procedure is set out in Schedule 12. Part 3 also abolishes the remedy of distress and replaces it with a modified statutory procedure—CRAR. It is due to come into force on 6 April 2014. The Taking Control of Goods Regulations 2013, SI 2013/1894 set out the detail of the procedure.

What is CRAR?

CRAR is a self help remedy initiated by a landlord’s instruction to an enforcement agent (formerly a bailiff) to either take control of goods at the premises or to collect rent up to the value of the arrears.

The net amount of rent outstanding (excluding interest, VAT and permitted deductions) must exceed a minimum (currently proposed to be the equivalent of seven days rent, but subject to change). CRAR gives a landlord three methods for taking control of the goods:

  • by securing goods on the premises or on a public highway
  • by a controlled goods agreement (this was known as a walking possession agreement)
  • by removal from the premises

When is CRAR due to come into force?

Following a consultation, the government has confirmed it will proceed with the abolition of distress and will be introducing CRAR. Part 3 establishing CRAR, is due to be in force on 6 April 2014.

What is the latest development?

New regulations have been published (see the Taking Control of Goods Regulations 2013, SI 2013/1894 (the Regulations)) which set out the detail of the procedure.

Part 2 of the Regulations relates to the procedure for taking control and the notice period. This is now seven days not the suggested 14 as per the draft consultation. This part deals with the time limit for taking control, the circumstances when a landlord can take control, controlled goods agreements and securing goods.

Part 7 addresses CRAR and confirms that the minimum amount of net unpaid rent that needs to be due to exercise CRAR is now seven days rent. This part also deals with the landlord’s right to recover from a sub-tenant.

What is the practical effect on landlords?

CRAR is designed to be a human rights compliant system. However, many commercial landlords see it as a watered down version of distress, which will inevitably make the recovery of arrears more difficult as:

  • CRAR can only be exercised on purely commercial premises (TCEA 2007, s 75)
  • CRAR only provides a remedy for pure rent arrears, not service charge or any other payment, even if it is reserved as rent
  • a landlord must serve seven days written notice on the tenant prior to taking any steps unless there is a reasonable chance the tenant will try and dispose or relocate the goods

If the system does not prove effective, there may be a rise in litigation and/or amendments to the Regulations. Landlords may be forced to rely more on other recovery options including utilising rent deposit deeds, recovering from guarantors, serving statutory demands and issuing proceedings for unpaid sums.

Now the small claims limit has been increased to £10,000 under the Jackson Reforms, an increased number of court applications may be seen.

What should lawyers acting for landlords do next?

Lawyers should highlight the limited scope of the CRAR regime to their landlord clients who may insist on a guarantor or a higher rent deposit instead. For example, the deposit can cover any shortfall including service charge arrears.

Interviewed by Joanna Bhatia.

This was first published a News Analysis piece in Lexis PSL Property and is available to subscribers of LexisPSL. If you are not a subscriber, please click here to find out more and to access a free trial.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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