Landlords in Distress?

10 October, 2013

Until now, one of the options available to a landlord when faced with a defaulting tenant has been levying distress against the tenant’s goods. “Distress” allows a landlord to seize goods in the premises that belong to the tenant, sell them, and use the proceeds to reduce or clear the tenant’s rent arrears.

Although they can levy distress themselves, landlords will usually instruct a bailiff to turn up at the premises unannounced and “seize” the goods by asking the tenant to sign up to a “walking possession” agreement which requires the tenant to leave the goods in situ for a few days. The bailiff will then return at the end of that period to take the goods away for sale if the tenant has not been able to find the money to clear the arrears in the meantime.

For landlords this can be an effective method of securing payment from a tenant. For the tenant it can be a nasty surprise, and one which can cause other problems for the tenant, such as embarrassment in front of its employees. As distress can be used as soon as the tenant is in arrears, unless the lease says otherwise, it is arguably a harsh remedy if used against a tenant who is only a day or two late with its rent and who otherwise has a good payment record.

However, the law is due to change from April 2014. The law of distress will be replaced with a new statutory procedure known as Commercial Rent Arrears Recovery, or CRAR for short. The changes will impose restrictions which landlords may feel will blunt this enforcement tool.

Under CRAR a landlord will have to give its tenant 7 clear days’ written notice before entering the premises to seize goods. So the element of surprise will be gone, and landlords may be concerned that less scrupulous tenants may take the opportunity to move their goods elsewhere to avoid seizure. While a landlord would be able to apply to court for an order allowing a shorter period notice to be given if it considers that a tenant may remove or dispose of goods, an additional step of that type and the extra cost it would involve might not be attractive to landlords other than in high value cases.

CRAR also reduces the availability of enforcement against goods in other ways. It can only be used for purely commercial premises. If any part of the property is residential, the use of CRAR is prohibited. CRAR is only available when the lease is in writing and it can only be used to recover rent (and a minimum of 7 days’ rent must be unpaid) as opposed to other sums that might be described as rent in the lease, such as service charge or insurance contributions. Attendance at the premises to take the goods, after the expiry of the 7 day notice, must be by a certificated bailiff between 6am and 9pm, or during the tenant’s operational hours, and the tenant can claim protection for goods that are necessary for its business up to the value of £1,350.

Tenants are likely to view CRAR as a fairer procedure. Landlords that rely on the current law as an effective means of recovering arrears may find these changes more distressing.