CRAR (at last)

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The 20-second summary

Government has finally published regulations implementing the long awaited reforms that were originally proposed in the Tribunals Courts and Enforcement Act 2007.  This now means that, from 6 April 2014, the ancient common law right to distrain for arrears of rent is abolished.  This is to be replaced by a new statutory procedure to take control of and sell a defaulting tenant’s goods – known as “CRAR” or Commercial Rent Arrears Recovery.

Background

There has long been criticism of the ancient common law right of a landlord to distrain against a defaulting tenant’s goods.  This has been regarded by occupiers as an archaic and heavy handed process, and (especially where a defaulting tenant is on the brink of an insolvency procedure) has been regarded as unfairly placing landlords in a position of priority when compared with other unsecured creditors.  Conversely, landlords have always regarded this remedy as an important weapon in their armoury; it is swift, inexpensive and a relatively easy means of encouraging tenants to pay up; especially in the case of retail premises where the negative publicity surrounding a visit by bailiffs would rapidly lead to an unwelcome loss of confidence by suppliers and customers.

From 6 April 2014 this will all become a thing of the past.

Have a look at some of the main changes, with some comments on their implications for landlords and tenants alike.

Outstanding issues

Some questions remain, following the publication of the regulations:

  1. Where must notice be served?  There does not appear to be any specific requirement for the 7 day notice to be served at the demised premises, only at a company’s registered office or a place where the debtor carries out a trade or business.  Therefore, where a debtor is a company or business operating from multiple locations, notice to the principal office or any office other than the demised premises would seem to be sufficient.  It may not be much comfort to a landlord, but at least it means that the occupiers of the demised premises will not be immediately tipped off that the enforcement officers will be paying a visit.
  2.  Is a landlord entitled to serve a notice on a subtenant immediately after serving its enforcement notice against its immediate defaulting tenant; or will it need to wait until the notice is “effective” after the period of notice (at least 7 days) has expired?  The former makes more sense but this is not clear in the regulations.

For more information on the above, please get in touch.

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