Harris Lamb is warning landlords to act on recovering rent arrears as a matter of urgency before legislation comes into force next month restricting their rights to recover debts.
From 6th April, the rules governing the recovery of commercial rent arrears will change to a new statutory regime for commercial rent arrears recovery (CRAR), replacing landlords existing rights.
The change to the law means that the option to use enforcement agents (bailiffs) to recover debts will only be available on commercial premises and will be prohibited if the property includes any residential use, and must follow a seven-day notice period of intention to exercise CRAR, prior to a further seven days’ notice before seizing goods.
Gert Corfield, Director of Property Management at Harris Lamb, said: “This is bad news for commercial landlords. Recovering debts will become more difficult and more expensive, but we have little option but to work within the new system.
“Getting County Court judgments is difficult, time consuming and expensive and not a practical alternative. For the first time it may be easier and cheaper to appoint a solicitor to make a statutory demand – a bankruptcy petition, but this takes longer and the debt must be more than £750.”
In addition, the new legislation only applies to rent, and no other services classified as rent by the lease, so landlords are unable to use bailiffs to recover service charges or insurance.
Gert added: “Given that the ability to use bailiffs for all non-rent items ends on 5th April this year, it would be prudent to review all debts and take appropriate action as a priority.
“The costs involved in collecting rent arrears are likely to rise. The costs for using enforcement agents to issue notices in the prescribed form moving forward, and their recoverability are still to be clarified. However, given the restrictions that CRAR introduces, other remedies such as statutory demands or County Court Judgments that were previously more costly are now likely to be more prevalent.
“In light if this, it is essential that from April, all new leases will need to be carefully worded, in particular where residential elements are involved, inclusive rents or turnover rents, in order to provide as much protection as possible to landlords,” he said.