How is CRAR working out?

 

Summer 2015

6th April 2014 saw the implementation of the Tribunals, Courts and Enforcement Act 2007 new statutory regime for Commercial Rent Arrears Recovery (CRAR).

One year on, how is it working out?

Not so good

Like the former system of distress for rent, CRAR allows a landlord to instruct an enforcement agent to enter the premises of a tenant who is in arrears, to seize and sell the tenant’s goods in order to recover the rent arrears.

But ... the new approach is more restricted and takes longer. It has not been good news for landlords.

How is CRAR working out?

Notification stage

The new regime added a notification stage requiring a Notice of Enforcement be issued to the tenant giving them notice to pay before enforcement action is taken. The notification stage was introduced to avoid debtors being charged large bailiff fees for what could have been an oversight. The government set a fixed fee for this stage of £75, regardless of the level of the debt.

For enforcement of domestic debt, such as council tax arrears, £75 may be sufficient deterrent to stop someone paying their council tax late; but it has unintended consequences for commercial debt.

If you are a business tenant and owe a quarters commercial rent of £50,000 the £75 notification stage fixed fee is a small price to pay to keep the £50,000 in your bank account for a few more weeks, in particular if the tenant has cash-flow issues.

Cheap Finance for the Tenant

The quarters commercial rent becomes due. The tenant does not pay by the due date.

  • If the landlord or his agent does a bit of chasing this gives the debtor / tenant perhaps two weeks extra to pay.
  • If they do not pay, then the landlord passes the case to a bailiff, and the Notice of Enforcement is issued and posted to the debtor.
  • That may take two further weeks before the Enforcement Stage.
  • So they have had a £50k loan for a month for £75 (the cost of the Enforcement Notice).
  • This is cheap finance for the tenant.

We have noticed a pattern with some tenants deliberately withholding their rent until the date of expiry on the Notice of Enforcement. Then they pay.

Non payment of Service Charges

Another pitfall we see quite often is the tenant pays the rent but withholds the service charges or insurance as they know that the landlord cannot use Commercial Rent Arrears Recovery, CRAR, to recover these. The landlords options will then usually be:

  • Send debt collection letters,
  • Issue proceeding in the already busy court system,
  • Issue a statutory demand,
  • or Forfeit the lease.

Under the previous system service charges and insurance were collectable under levying distress for the outstanding rent.

Taking Control of Goods

Under the previous system of levying distress, the bailiff could take walking possession by listing the goods. If the tenant failed to pay the goods could be removed to be sold.

Under the new system there are more restrictions that delay the process of recovering the money due to the landlord.

  • The bailiff can only secure the goods on the property by taking a full inventory and listing them fully. With a tenant such as a car showroom this is relatively easy. But with a ladies clothes shop with hundreds of dresses, shoes, bags, shorts ... the practicalities of doing these type inventories are difficult to say the least.
  • If the debtor defaults on the arrangement you can not just turn up that day and remove the goods. You have to go through the procedure of serving a notice of intention to re-enter and wait 2 clear days before doing so.

Mixed use Property

A significant change under the new legislation is that CRAR is not available for mixed use property.

So pubs and shops, for example, that include living accommodation on the same lease are exempt from CRAR, forcing the landlord to have to go to court.

We can help

Enforcement Bailiffs Ltd has over twenty five years experience in the execution of warrants, especially in the commercial rent sector.

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

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