New regulations governing the ways in which landlords can recover commercial rent arrears could upset relationships between owners and tenants.
Naomi Game from Bruton Knowles’ Guildford office said the new Commercial Rent Arrears Recovery (CRAR) procedure due to come into force in April, will replace the tried and tested ‘distress’ common law remedy which has been in use for more than 800 years.
The new CRAR regulations are intended to replace the old distress procedure – through which landlords could recover arrears of rent from their tenants by instructing bailiffs to seize their goods and sell them without going to court or giving the tenant any advance warning.
But from 6 April 2014, landlords wishing to take control of and sell a defaulting tenant’s goods will be required to give them notice before entering the premises and only rent up to the date of this notice can be recovered.
The notice period must be at least seven clear days (not including Sundays, bank holidays, Good Friday or Christmas Day).
But according to Naomi Game, the new regulations had received a lukewarm reception from the rapidly recovering commercial property sector.
She said: “The old regime was generally regarded by landlords as a quick and efficient method to recover rent arrears. The new procedure is narrower in scope and is likely to be less useful to landlords than ‘distress’.
“Landlords will be particularly concerned regarding the prior notice requirement which could give a tenant the opportunity to move any items of value to a secure location or to dispose of them, restricting the usefulness of CRAR.
“Issues are also likely to arise in relation to where a notice must be served. It would appear that it can be served at the demised premises, at a company’s registered office or a place where the debtor tenant carries out a trade or business.
“It may be better not to serve the notice at the demised premises, in the hope that it is overlooked or the occupiers of the demised property are not notified of the enforcement agent’s visit.
“Also, the fact CRAR only applies to basic rent means that tenants may pay the basic rent, leaving items such as insurance and service charges unpaid.
“We will have to wait and see how useful the new regulations are in practice but at this stage it would appear that CRAR could make the recovery of arrears a more time consuming and costly process.
“The new scheme applies to all leases of commercial premises and landlords would be well advised to keep themselves up to speed with its full implications.
“Landlords need to be thinking about their existing agreements and how a new one should be drafted, in particular as regards tenant referencing and credit checks so as to limit the instances when action is necessary.”