Commercial Rent Arrears Recovery may be the answer you’ve been looking for if you’re a commercial landlord facing the challenge of a tricky tenant who isn’t paying rent. Given the risks of incurring significant unpleasant financial and operational costs , taking action is crucial.
So, what can you do about it?
In this post, we will talk you through what Commercial Rent Arrears Recovery is, what the procedure involves, and its benefits and drawbacks. Read on for more information.
What Is Commercial Rent Arrears Recovery?
In landlord and tenant law, Commercial Rent Arrears Recovery refers to the statutory process that enables commercial landlords to recover rent arrears from tenants without going to court. This is relevant when tenants stop paying rent in a commercial property. During the process, landlords can appoint enforcement agents to collect rent or seize tenant goods to cover the debt.
While this process can only be utilised for “pure” rent arrears (rather than other charges like service fees), Commercial Rent Arrears Recovery may be the ideal solution for commercial landlords wanting to avoid complex and costly litigation processes.
Who Can Use the Commercial Rent Arrears Recovery Procedure?
Generally, Commercial Rent Arrears Recovery is used by landlords of commercial properties where a tenant remains in occupation of the property. There are also other requirements for landlords to consider if they wish to use Commercial Rent Arrears Recovery, including:
- An equivalent of seven days’ rent must be outstanding;
- A notice of enforcement should be given to the tenant at least seven days before any goods are seized (although the landlord can request a reduced notice period from the court if it is likely the tenant will remove goods from the property);
- A valid written lease agreement must exist between the landlord and tenant;
- Certified enforcement agents used to conduct the CRAR process must be authorised under the Tribunals, Courts and Enforcement Act of 2007;
- Only goods on the premises owned by the tenant, as stated in the commercial lease, can be seized, and they can only be taken during regular business hours;
- The agent must recover goods within 12 months of the enforcement notice date; and
- The tenant should be given seven days’ notice of the sale of their seized goods.
What Is the Commercial Rent Arrears Recovery Procedure?
Now that you know the requirements, take a look at a brief overview of the Commercial Rent Arrears Recovery procedure below.
Be mindful that, as a landlord, you are unable to modify the procedure as you will risk breaching anti-avoidance provisions. This means you can only initiate the process by seeking an authorised agent to do the job for you. Once you’ve found an agent, you can complete a Warrant of Control form, granting the agent the right to conduct the rest of the process on your behalf.
- Compliance
You must serve your tenant a seven-day notice of arrears, offering them the chance to pay the rent.
- Enforcement
If your tenant does not pay the rent within the seven-day notice period, your enforcement agent will be able to enter the commercial property to seize the tenant’s goods. The goods seized must be equivalent in value to the rent owed. The enforcement stage must be completed within 12 months of the date of the notice of arrears.
- Disposal
During the disposal stage, the seized goods will typically be sold at a public auction to raise money which can then be applied towards the rent owed to you.
Commercial Rent Arrears Recovery: Pros and Cons
Let’s weigh up the benefits and drawbacks of Commercial Rent Arrears Recovery to see if this is the right method for you.
CRAR Advantages:
- Reduced costs
Compared to methods like litigation, CRAR can be much more affordable, avoiding the expense of lengthy court cases.
- A professional approach
Enforcement agents used in this process must be certified, ensuring the recovery process is conducted professionally and in compliance with the law.
- Quick and straightforward
CRAR offers commercial landlords a direct and efficient way to recover rent without time-consuming court procedures.
- A strong incentive to pay overdue rent
A threat of goods seizure can sometimes be enough to prompt tenants to pay their overdue rent quickly, enhancing the chance of debt recovery without actually needing the process to go ahead.
CRAR Disadvantages:
- Limited uses
CRAR doesn’t apply to residential properties, meaning that residential landlords cannot take advantage of its power. Furthermore, the procedure can only be utilised to recover rent, meaning it cannot help recover other sums owed (such as service charges).
- Associated costs
While the Commercial Rent Arrears Recovery procedure is typically less expensive than litigation, the landlord still has to cover costs associated with employing enforcement agents, which could soon add up and ultimately decrease the overall amount recovered to clear the outstanding rent arrears.
- Tenant insolvency
If your tenant faces financial difficulties, this method can fail to recover the full amount, with the landlord competing with other creditors for assets.
Alternatives to Commercial Rent Arrears Recovery
After weighing up the pros and cons, you may wonder if an alternative route to debt recovery is better suited to your situation. Luckily, there are a few alternatives you can opt for aside from Commercial Rent Arrears Recovery, such as:
- Statutory Demand: A formal written notice demanding payment of a debt, stating the amount owed and warning of the legal consequences if the debt is unpaid. Serving a Statutory Demand is typically straightforward and affordable although, if the tenant cannot afford the debt, the demand may not result in actual payment.
- Forfeiture: A legal procedure involving a landlord terminating a lease and repossessing the property due to the tenant breaching the lease terms. Forfeiture can help a landlord regain possession of their property quickly, but they may face challenges of re-letting the property after the tenant has been evicted.
- Court proceedings: Initiating a legal action against the tenant in a court of law to resolve a dispute. Proceedings offer a structured legal process to obtain enforceable judgements, although the timing and expense must be considered.
- Rent deposit: Landlords may use the rent deposit paid by the tenant by giving notice and drawing down from it. The tenant would have to put further funds into the deposit account. While this method can help recover some money, it is unlikely to cover the full amount (and, if the tenant fails to top-up the deposit, there may be insufficient deposit monies to rectify any other issues for which a rent deposit can ordinarily be used).
- Using a guarantor: If a third party has agreed to act as a guarantor for a tenant, landlords can pursue the guarantor if the tenant fails to pay rent. This method can enable landlords to successfully recover the full rent arrears, but legal proceedings may be (and often are) required to force the guarantor to pay.
Need Guidance on the Commercial Rent Arrears Recovery Procedure?
Obtaining legal guidance on Commercial Rent Arrears Recovery is vital if you are considering this action in order to protect your financial situation as a landlord. Fortunately, our team of experts can assist you in choosing the best debt recovery method while ensuring you comply with all legal requirements.
We work tirelessly to protect our clients’ rights and provide clear information during the procedure. So, if you’re seeking advice in this area of commercial property law or need help with any other business legal service from property development to finance, we can help. Please get in touch today to have a conversation about the challenges you are facing.