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Commercial Rent Arrears Recovery (CRAR)

Posted On 04 May 2022 by Bhavani Hogarty and Sasha Loveridge
Commercial Rent Arrears Recovery (CRAR)

CRAR is a statutory procedure that allows landlords of commercial premises to recover rent by taking control of the tenant’s good and selling them. The legislation is contained in the Tribunals Courts and Enforcement Act 2007.

CRAR applies only to commercial premises, it cannot be used to recover unpaid rent sums in respect of mixed use or residential premises.

In order to use CRAR, a notice of enforcement must be served on the tenant by the certificated enforcement officer. Not less than 7 days notice must be given (this notice period excludes Sundays and bank holidays). This notice period gives the tenant a chance to pay the debt owed or make a proposal for repayment.

The notice must contain details of the value of the debt; costs and interest; sufficient details of the debt; how to make payment; the date and time the payment must be made by in order to prevent enforcement action; costs of further enforcement action and details of debt support agencies and charities.

If the tenant does not pay the debt after the notice of enforcement has expired, a certificated enforcement officer can be employed to take control of goods.

The certificated enforcement officer can only enter the property by a normal means of entry ie through an unlocked or open door. Entry to the premises cannot be forced.

CRAR can be exercised between 6am and 9pm on any day of the week or outside of those hours if the premises are open for trade.

On entry, the certificated enforcement officer can use a variety of ways to take goods - the agent can either secure the goods on the premises they are found for example, clamp a vehicle, remove goods from the premises immediately and secure them elsewhere, lock up goods on part of the premises e.g. impounding high value items or enter into a controlled goods agreement with the tenant.

A controlled goods agreement allows the tenant to retain custody of the goods but acknowledges that the enforcement agent has taken control of them and agrees not to remove or otherwise dispose of those goods until the debt is paid. Entering such an agreement is often a better alternative to removing goods there and then as the tenant can continue to run their business. 

Only certain types of goods can be seized and an inventory must be made by the enforcement officer detailing the goods taken. 

Therefore, only goods belonging to the tenant on the demised premises may be seized ie property covered by the lease. Much will depend on the lease but property can be taken from car parking spaces and compound storage as long as it is property owned by the tenant and not a third party.

Co-owned goods can be seized but anything that belongs to someone else is known as a “third party good” and cannot be taken. Furthermore, goods owned by a sub-tenant cannot be seized.

The certificated enforcement agent must not take control of goods with a value greater than the rent owing plus costs. Essential items must not be taken and goods that are necessary for the debtor’s personal use in connection with their employment, business, trade, profession, study or education are exempt from being taken but only up to a value of £1,350. Beyond this value, goods can be taken control of. 

Furthermore, the enforcement officer should also not take something if removing it would cause a lot of damage and items which are in use by the tenant may not be taken control of if such an action would result in a breach of the peace.

Goods seized must be valued and must not be sold for at least 7 days to give the tenant a chance to pay the debt owed. If however the goods would become unsaleable or their value substantially reduced, the 7 day period can be waived. The valuation of the goods must be provided to the tenant. 

Should the seized items go to sale, they must be sold at public auction and 7 days clear notice of the sale must be provided to the tenant.

From a practical point of view, often an enforcement officer will take proactive steps not to cause embarrassment to the business by not wearing a body camera and considering the clothing they wear as this can be detrimental to the relationship between landlord and tenant and also the reputation of the business. 

How effective is CRAR?

The main issue that can arise is if the tenant does not have any assets that can be sold to recover the debt. Other methods of debt recovery would need to be considered at this stage.

CRAR only applies to principal rent, VAT and interest as opposed to any sums reserved as rent in a lease and can only be exercised at commercial premises. 

Furthermore, CRAR lacks the “element of surprise” due to the 7 day notice period provided by the enforcement agent. CRAR also prescribes the method of sale of the goods seized so there is a lack of flexibility.

However, in many cases, the majority of tenants faced with CRAR either make full payment or agree a repayment plan with their landlord before goods are actually taken as many tenants are concerned about the adverse effect on their business if an enforcement agent turns up and will be keen to avoid their staff and customers finding out they are behind on their rent payments. It also means in many cases the tenant stays in the premises which means the landlord does not have a temporary problem of an empty premises and thus no loss of rent.

CRAR is relatively cost effective as all costs including the costs of the enforcement agent are recoverable from the tenant.

Whilst CRAR has limitations, on the whole, it is a quick and easy, out of court route, to recover rental arrears.

If you have any queries or concerns in relation to any commercial rent arrears, please do not hesitate to contact Bhavani Hogarty who heads the specialist Commercial Property Disputes Resolution Team by email to bhavani.hogarty@pardoes.co.uk or telephone on 01935 382680.