The government is finally going to reform the law on collecting rent arrears - replacing the ancient common law remedy of "distress" with a new process more compatible with contemporary principles of procedural fairness.
It's been a long time coming.
The government launched a consultation in February 2012 and on 25 January 2013 it issued its response, which includes a recommendation to replace distress with a new statutory process - Commercial Rent Arrears Recovery (CRAR) - by implementing Part 3 of the Tribunals, Courts and Enforcement Act, which received Royal Assent 6 years ago in 2007 but wasn't brought into force.
I wrote about distress in these posts from 2011 and 2012, but here's a quick recap.
The right to levy distress (or “distrain”) for unpaid rent is a self-help remedy allowing a certified bailiff, on behalf of a landlord, to enter commercial premises occupied by a defaulting tenant and remove and sell goods owned by that tenant up to the value of the rent arrears without initiating legal proceedings.
Even the bailiff’s statutory fees are payable by the tenant.
The only redress a tenant has is to bring an action within 5 days (which can be extended to 15 days) - an obscure remedy called "replevin" - to recover goods that have been illegally seized.
Distress is a popular remedy for landlords, especially with struggling retail tenants who may nevertheless be carrying a load of valuable stock.
However, an ancient common law remedy that allows the landlord to be judge, jury and executioner all in one, doesn't sit well with the conventions enshrined in the Human Rights Act or modern principles of procedural fairness (and it was abolished long ago for residential property).
When it's introduced, CRAR will replace distress. CRAR will still allow a landlord to enter and seize goods, but only on the following conditions:
· CRAR can only be used to recover “pure” rent arrears - this includes VAT and interest on rent, but not related costs such as service charges and insurance.
· The landlord must first serve an enforcement notice on the defaulting tenant – crucially removing the element of surprise. Following the consultation, the government is now recommending a notice period of 7 clear days (the original proposal was 14 days), to reflect landlords' "concerns". Arguably however any notice period gives the debtor an opportunity to move the goods before the landlord can get hold of them.
· Following the expiry of the notice period, only an enforcement agent can then enter the premises to remove goods.
· CRAR will only be available where a minimum amount of rent remains unpaid. The current proposal is for this minimum amount to equal 7 days' rent arrears. However, most respondents to the consultation disagreed with this, and the government concedes there are "strong arguments" in favour of retaining the current minimum of one day, in particular where the tenant is on the verge of insolvency and a longer time period introduces delays into rental payments. The government is to consider this point further with creditors and the enforcement industry.
Many landlords would disagree with reforming the current law at all.
At a time when landlords are being hammered by large corporate tenants going into administration or other forms of insolvency, resulting in insolvency practitioners and successor businesses being able effectively to cherry-pick which properties they keep, the ancient remedy of distress could be seen as simply helping to redress the balance.
It's a hard one to justify philosophically though.
And landlords can demand rent deposits and guarantees if they're unhappy with the new CRAR process.
The CRAR reforms are part of wider, more headline-grabbing, reforms being introduced at the same time to protect vulnerable people from aggressive bailiffs.
The government is seeking parliamentary time to amend the 2007 Act, and new CRAR regulations, with a fair wind, ought to be forthcoming later in the year.
It's been a long road so far though, so who knows?