Landlords of commercial premises across the region face tougher hurdles in recovering rent arrears following changes to the law, it emerged today.
CRAR – Commercial Rent Arrears Recovery – has implications for property owners who wish to seize goods to sell in order to make up the financial shortfall.
It replaces the ancient common law of distress, which allowed bailiffs to seize and sell goods to recover rent arrears without warning.
The legal changes came into effect on April 6 and mean a more regulated method of enforcement, said Garry Lee, a recovery and restructuring manager at the South Coast office of Smith & Williamson, the accountancy and investment management group.
He said: “In the past bailiffs could appear on the doorstep of the tenant, without warning, to remove goods. The goods could then be sold and the proceeds offset against the outstanding amount.
“But now there are clear legal procedures – for landlords to comply with to ensure they remain on the right side of the law as they chase outstanding rent.”
These include:
· Providing seven clear days’ notice to a tenant
· Recovery of basic rent, VAT and interest only
· Written appointment of a certified enforcement agent
Garry said: “CRAR is well intentioned and transparent but the downside is that landlords could well be left out of pocket because services charges and insurance, even if they are built into the rent, are exempt from recovery. These elements would need to be separately pursued through proceedings issued in the County Court.”
CRAR can only be exercised when there are seven days’ rent outstanding that is due under a written lease; goods cannot be seized more than 12 months after the enforcement notice is served either by post or electronically.
Furthermore, enforcement agents aren’t allowed to take more than the value of the debts and the associated recovery costs.
Goods seized must belong to the tenant, not third parties.
Moreover, goods necessary for the debtor’s personal use or for business, trade, profession, study or education cannot be taken up to the value of £1,350.
The enforcement agent must then wait seven clear days before selling the goods and must also give the debtor seven clear days’ notice before selling the goods, unless they would become unsaleable or suffer a substantial diminution in value.
Garry added: “There is another rider – if there is a likely breach of the peace, the goods cannot be seized.
“However, an unintended consequence of this may be to encourage normally courteous tenants to deliberately raise the ante by appearing verbally abusive and threatening.
“In cases where tenants are struggling to pay rent, landlords and their agents need to take professional advice from recovery experts to ensure they don’t fall foul of the new law.
“At Smith & Williamson we are currently advising our clients how best to handle this situation and to help turn around distressed tenants trying to avoid the issues, where possible.”
