Monday, 31 March 2014

No More Distress

From 6 April 2014 the ancient common law remedy of distress bites the dust.

For commercial premises, in its place comes the new commercial rent arrears recovery (CRAR) procedure.

Distress is a self-help remedy that allows a landlord to recover unpaid rent by seizing its tenant's goods that are on the premises and selling them to pay off the arrears - all without the bother of having to go to court.

The abolition of distress has been a long time coming - it's 7 years since a change in the law was first trailed in the Tribunals Courts and Enforcement Act 2007, and the relevant provisions are only now being brought into force.

From 6 April 2014, any arrears relating to residential premises must be pursued through the courts.

For commercial premises only, the new CRAR procedure will replace distress.

CRAR preserves the concept of self-help remedy for landlords, but with important differences.

·         A warning notice of at least 7 clear days must first be given to the tenant of the intention to use CRAR, followed by a further 7 days’ notice of the proposed sale of the seized goods.

·         At least 7 days' rent must be overdue.

·         A landlord may only use certificated bailiffs to enforce the remedy.

·         CRAR is for commercial premises only - it will not be available for mixed use premises (eg where a flat above a shop included in the same lease) - if any part of the premises are residential, CRAR cannot be used and arrears must be pursued through the courts.

·         CRAR can only be used to recover "pure" rent arrears, which includes VAT and interest, but not other items that might be "reserved as" rent (such as service charge or insurance rent).

The key change is likely to be the requirement to give 7 days' notice.

At present, when using the distress remedy, landlord's agents can just turn up unannounced.

The notice period will give the tenant an opportunity to clear out goods before the landlord tries to take them away.

The 7 days' notice is however a concession to landlords, who lobbied against the original proposal of a 14 days' notice.

Landlords still have the option of serving a notice on any sub-tenants requiring them to pay their rent direct to the head landlord, but the notice will now only take effect 14 days after service.

For mixed use properties, from now on owners may wish to consider letting them on separate residential and commercial leases in order to preserve the CRAR remedy for the commercial part.

With distress being at long last consigned to legal history, landlords may also feel more inclined now, when granting new leases, to look for rent deposits or guarantors.

For more details on the new procedure, see The Taking Control of Goods Regulations 2013.

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