To CRAR or to Forfeit

 

that is the question

Commercial Landlords are often faced with the above question and ask for our advice. Each situation is unique and so the answer obviously varies. In this article I want to explain the two approaches to hlp you decide which is the better option for you.

Forfeiture

Forfeiture is the ending of the lease. It allows you to regain control of your property. It however does not recover the outstanding rent.

You cannot take back possession of the property from your tenant AND seize their belongings left in the property to sell them to pay off the debt.

If you forfeit the lease you lose the right to exercise CRAR.

Forfeiting the lease however does have a number of advantages.

  • For rent arrears you do not usually have to give any notice.
  • If there is little of value in the goods within the property then the unit itself may be more valuable to the tenant. So by Enforcement Bailiffs arriving to lock them out, it may encourage them to pay up.

For example in a takeaway shop or hairdressers the goods may be of little value, or on finance, or even be classed as fixtures. There is little point in trying to exercise CRAR as there is nothing of value to seize.

However if you lock the tenant out of the property and they cannot trade, even if they have their goods back, it may stop them from making a living. This can be a powerful incentive to the tenant to pay the outstanding rent.

If you are happy to retain the tenant we will take time to explain the benefit of this last opportunity for them to pay you the outstanding rent.

Exceptions

There are some exceptions that you need to be aware of. Lease forfeiture by peaceable re-entry is not always an option available to you.

You cannot exercise your right to forfeit the lease by peaceable re-entry if the property has any residential use whatsoever.

So if the property is a pub with a flat above, or a shop with a flat above, then you cannot usually use lease forfeiture.

A landlord of a residential property cannot forfeit by peaceable re-entry as this is contrary to Section 2 of the Protection from Eviction Act 1977.

Where the premises are part commercial and part dwelling, the legalities were vague. In Pirabakaran –v- Patel (2006) 3 EGLR 23 the Court of Appeal made clear this matter and decided that “let as a dwelling” meant “let wholly or partly as a dwelling”.

The effect is that a landlord wanting to forfeit by peaceful re-entry needs to be clear that no part of the premises are let as a dwelling, otherwise they will have to issue possession proceedings and will not be allowed to forfeit by peaceful re-entry.

Under Section 75(1) of the new Act the law provides us a definition of commercial premises and states that commercial property for the purposes of this Act as only property where:

  1. NO part of the demised property is Let as a dwelling,
  2. let under an inferior lease as such,
  3. or even occupied as a dwelling.

We are advised this means that mixed use premises cannot be forfeited by peaceable re-entry.

Where the occupation as a dwelling is in breach of lease or superior lease, however, under Section 75(5) of the new Act, the premises will not be treated as let as a dwelling and forfeiture by peaceable re-entry is available.

CRAR

CRAR is the new version of Distress Rent. It still gives commercial landlords a privileged right above other creditors by allowing them to issue warrants of control to Certificated Enforcement Agents against tenants in their own property who are in rent arrears.

It does not go as far as Distress did, but has certain advantages especially as it is quick and usually free to landlords.

You can only issue a warrant for rent. You cannot issue a warrant for service charges or insurance.

  • The amount of rent owed has to be more than 7 days.
  • The property must be purely commercial.
  • There must be evidence of an existing lease.
  • The goods must not be on the exempt list.
  • And, of course, the goods must be worth taking.

There is a requirement now for the Certificated Enforcement Agents to send or serve a Notice of Enforcement.

Depending on whether the Enforcement Notice is posted or served the Certificated Enforcement Agent cannot enforce it by taking control of goods for between 12 and 14 days. This gives the tenant time to hide or dispose of any valuable goods.

Which is best?

Each situation is different.

  • Lease forfeiture gets you your property back quickly.
  • The threat of lease forfeiture may get you the outstanding rent paid quickly.
  • CRAR may get you your rent and costs paid.

At Enforcement Bailiffs we have considerable experience in dealing with lease forfeiture and CRAR.

If you have any questions, or wish to talk through your own situation, get in touch.

London & South
0208 090 2439
Midlands & Wales
01733 306 462
Northern England
01325 526 127

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