Member Article

Law change on recovery of unpaid rent ends distress

Paul Earnshaw, landlord and tenant expert at leading North East law firm Short Richardson & Forth, comments on a recent law change affecting recovery of unpaid rent.

On April 6 2014 the common law right of distress for rent was abolished and replaced by a new procedure called Commercial Rent Arrears Recovery (CRAR), so if you are a landlord of commercial property and your tenant is behind with the rent there are new rules to follow.

Distress was a set of common law rules dating back as far as the Magna Carta, with Acts of Parliament from 1689 and 1737 amongst others. When a tenant owed rent distress could be used so that a bailiff turned up unannounced and took goods to the value of the outstanding rent.

Distress was a favourite remedy of some landlords, as often there were quick results at low cost. However, sending a bailiff knocking on the door of your tenant and taking goods was regarded by many as draconian and it often caused long term damage to the landlord and tenant relationship.

The complexity of the law, developed over hundreds of years, meant the law makers starting looking at reform over 10 years ago, and the changes have at last been made with the new procedure sweeping away all the existing law.

CRAR is, in a lot of ways, very similar to distress but there are key differences including:

Distress could be applied for any money reserved as rent, and leases often define any money owing to a landlord as “rent”. CRAR only applies to actual rent and VAT (and so does not include service charges, insurance premiums, costs etc.)

CRAR is dealt with by an Enforcement Agent, rather than a Certified Bailiff, but all bailiffs are making sure they are also Enforcement Agents.

7 days’ notice must be given before CRAR is applied and this does not include Sundays or Bank Holidays. Distress could be applied without notice. This is the likely to be the difference that has the most impact. It remains to be seen if tenants will use the 7 days’ notice to pay the arrears, or to hide their assets and make it difficult for the Enforcement Agent to successfully do his job.

CRAR only applies to commercial property, whereas distress could also apply to residential and mixed use property.

CRAR can be exercised between 6am and 9pm, whereas distress could be exercised between sunrise and sunset, and finally all goods subject to CRAR need to be sold at public auction unless a court order says otherwise.

CRAR certainly simplifies the law, meaning all the rules are in one place instead of in centuries of court decisions, but whether the new rules assist landlords in recovering rent arrears and help the landlord and tenant relationship remains to be seen.

Short Richardson & Forth LLP have experts who can assist with all landlord and tenant issues, and Jenine Martin also leads the firm’s debt recovery team.

This was posted in Bdaily's Members' News section by Short Richardson and Forth LLP .