Commercial Rent Arrears Recovery (CRAR) is a process that was introduced on April 6th, 2014 to replace Distress for Rent. It means that landlords can recover rent without needing to go to court, (this can only be done by using certificated enforcement agents).
What is CRAR for?
CRAR is a procedure that only applies to rent and any VAT or interest due under the lease. As such, items that are not directly attributable to the possession and use of the premises by the tenant are not recoverable under this procedure. For the process of CRAR to be used, a written lease needs to be in place.
Moreover, for the CRAR procedure to be valid, a net unpaid rent needs to be calculated so that the landlord can claim arrears action. This means that as a landlord, you need to be able to calculate the rent due with utmost certainly, once VAT, interest, and any permitted deductions are made.
What is the minimum arrears period?
Before CRAR can be exercised, a minimum amount of arrears due must exist. This is known as “net unpaid rent” and is equivalent to a week’s rent (seven days). This is different from the old procedure, which allowed landlords to seize the assets of a tenant immediately upon falling behind with rent.
What can I recover with CRAR?
By employing the CRAR procedure, your chosen enforcement agents can recover only the principal rent due, as well as VAT and interest. You cannot use CRAR to recover insurance premiums, service charges, rates, or any other payments that are no direct rent. If you need to recover other charges not related to rent directly, you may need to look at alternative routes to do so, which include obtaining a court judgement and using the services of High Court Enforcement Officers.
If the rent is still not paid the enforcement agents can enter and take control of the tenant’s goods. At this point a Controlled Goods Agreement will be obtained to give the tenant a chance to agree to a payment plan. If an agreement cannot be reached, then the goods will be seized and sold at auction to pay off the debt. There are rules surrounding the goods that can be seized to repay the rent arrears. If the goods are used directly for trading, then they are exempt up to a value of £1,350, they must also belong to the tenant, they cannot be owned by a 3rd party.
What types of leases can I use CRAR for?
In order to apply the CRAR procedure, you need to have a current written lease in place, which needs to be solely for commercial use. You cannot use the CRAR procedure for properties with mixed use. For example, if the property in question is used partially as a dwelling, the procedure cannot be applied.
How much notice is needed?
You will need at least seven days’ prior notice, and these do not include Sundays or any Bank Holidays. You can also only exercise CRAR between 6 a.m. and 9 p.m. on working days.
How has COVID-19 changed CRAR?
The 2020 COVID-19 pandemic saw the introduction of new legislation and part of this had a direct impact on CRAR. Called the Coronavirus Act 2020, it placed restrictions on what commercial landlords could do the recover outstanding rents. Therefore any landlord must understand these new rules before attempting anything relating to rent recovery.
Currently, the regulations apply to England and Wales but Scotland has its own set of rules which are slightly different. You should always work with a law enforcement agency who is clear on the relevant rules for your area of the UK.
Key features of the legislation
There are many provisions in the Coronavirus Act 2020 but the ones that most relate to CRAR are the ones we will study here. There are a number of points that landlords need to be aware of under the new Act. These include:
- A moratorium on forfeiture of commercial leases for non-payment of rent. This is defined as including all money paid under the lease including service charges, insurance payments, utilities as well as rent
- Rent is still payable and the tenant still has to adhere to contractual or other enforcement terms
- Failure by the tenant to pay rent during the period has been removed as a ground of objection by a landlord to a new tenant
- After the legislation has finished, the landlord can claim forfeiture for both payments that were due during the moratorium period as well as after it
- Short leases are exempt from the legislation so a tenant on a six month or less lease can still forfeit if they don’t pay their rent
Most importantly, the moratorium also prevents landlords from using CRAR unless they are owned a certain amount of rent. This falls under the Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020 (the CRAR Regulations).
This time frame for CRAR has changed during the year and was originally 189 days from June 24th. This was extended to 276 days from September 29th and will increase to 366 days from December 25th.
Currently, the legislation started on March 26th and has been extended until the end of 2020. It is unknown if it will continue after this.
What can landlords do?
While this vastly extends the period landlords must wait before taking any action against tenants not paying their rent, there are still some options available.
Recovery from former tenants and their guarantors is still allowed to proceed as normal. An ‘old lease’ is defined as one before January 1st, 1996. However, the existing rules under the Landlord and Tenant (Covenants) Act 1995 (LTCA) do still apply regarding how long has passed.
Recovery from existing guarantor can still be permitted in some cases. A lot depends on the lease and its wording so expert advice should be sought before attempting this.
Recovery from subtenants under the CRAR procedure can still be conducted. Under section 81 of the Tribunal, Courts and Enforcement Act 2007, subtenants can be required to pay rent to the landlord directly rather than to the tenant. Landlords are entitled to use CRAR against the tenant or subtenant’s goods under the new periods of time.
Why use a law enforcement agency?
By using Able Investigations to recover rent under CRAR, you are sure every step is followed correctly, and you do not have to wait too much until you can recover rent due by seizing the assets of your tenant. We can also speed up the process and help you with the eviction of tenants as well if that is the case.