| Commercial
Rent Arrears Recovery  PainSmith
Solicitors Legal Update
1
April 2008 by
Gemma Hadlow of Pain Smith Solicitors* For
commercial landlords with tenancies created under the Landlord and Tenant Act
1954, the imminent introduction of the Tribunals, Courts and Enforcement Act 2007
("the Act") is set to have an effect on the way in which they recover any rent
arrears. The new procedure which has been introduced in order to comply with the
European Convention on Human Rights can be found under ss 71 to 87 of the Act
and is known as Commercial Rent Arrears Recovery (CRAR). The
provisions are anticipated to come into force later this year and they are firstly
set to abolish the well recognised common law right to distrain1 for arrears of
rent. In its place will be CRAR which replaces the traditional remedy with a clear
modern day system which will allow commercial landlords to instruct enforcement
officers (i.e bailiffs) to collect arrears of rent. If a landlord seeks to utilise
this statutory remedy they will be required to follow a more stringent procedure
which involves the satisfying of some strict pre-requisites including the service
of notices and the obtaining of a Court Order. Definition
of Landlord The
first pre-requisite for anyone seeking to implement the CRAR procedure is to satisfy
the definition of a landlord under s73 (3) of the Act which requires him to be
"entitled to the immediate reversion" in the property comprised in the lease.
Joint landlords, mortgagees in possession and receivers also fall under the definition.
An important exclusion to the provisions is found under s 74 (2) of the Act which
states that for a landlord to be able to utilise the CRAR remedy they must have
a written agreement. Verbal agreements will not be sufficient in permitting a
landlord to distrain goods via CRAR. A further important exclusion affects mortgagees
who may only utilise CRAR where the lease has been created with their knowledge
and not contrary to the provisions of the mortgage. Lease Under
s 74 the provisions stipulate that they will not apply unless there is a lease.
Where circumstances can be interpreted to have created a mere licence the CRAR
procedure will not be available. It entails that unless exclusive possession has
been granted with a clear landlord and tenant or lessor and lessee relationship,
alternative remedies will have to be considered. Other forms of agreement can
. give rise to CRAR, such as a tenancy at will2; however, this is subject to certain
conditions. A tenancy at sufferance3 is excluded under s 74.
1 The common law remedy which can enable a commercial landlord to seize or hold
goods to compel payment of arrears. Commercial
Premises The
provisions do not apply where some part of the premises is let as a dwelling and
will only apply to premises used solely for business purposes. If the premises
are used as a dwelling, the only way the CRAR procedure can be exercised is if
the lease or any superior lease prohibits this and therefore by using the property
for residential purposes the tenant has committed a breach of the lease or superior
lease. This
particular condition which is found under s 75 is likely to cause some landlords
a problem with mixed use of a property meaning that CRAR cannot be employed. Whilst
this is not unfamiliar when using distress, it is essential that landlords seek
to preserve the remedy of CRAR by inserting a strict user clause in their lease.
For example: "The Tenant must not use the Premises for any purpose other than
as offices connected with the business of marketing, selling and letting residential
properties." It
is important to note that the new Act prohibits any form of variation or modification
of the provisions which Landlords may try and implement to extend their rights.
Under s 85, any clause within a lease which goes beyond that set out under the
Act, such as to allow the application of CRAR in premises used partly for residential
use, will not be enforceable. Recovery
of Rent Only The
provisions do not operate for recovery of anything else other than rent. Unlike
with distress, the definition of rent is solely those sums payable, in advance
or in arrears, for possession and use of the demised premises. This definition
under the Act cannot be altered via the lease as is commonly done in a commercial
lease and so arrears of rates, service charges, council tax, insurance, maintenance
and repairs will not allow use of the CRAR process. For these types of arrears,
a landlord will have to use court proceedings to recover their losses. In
addition to the above, the rent recoverable must be "due and payable"; it must
be calculable with certainty; and net unpaid rent must be no less than the minimum
amount as dictated by the regulations. It is this last condition which could have
a detrimental effect on whether the landlord may utilise CRAR since to calculate
the net amount interest, VAT and permitted deductions must be considered. Consequently,
this could mean that set off for permitted deductions such as where a landlord
has breached a term of the lease or where compensation is payable to the tenant
for improvements this may result in the landlord not satisfying the minimum amount
and not being able to use CRAR. Should this occur an alternative remedy will have
to be considered such as issuing court proceedings. After
the end of lease Subject
to exceptions, s 79 permits the use of CRAR after a lease has ended. Some of the
conditions under s79(4) which preclude CRAR being used include where forfeiture
has been utilised; the tenancy has ended more than six months ago; and the tenant
has not given vacant possession. Landlords who have assigned their interest in
the let property are also not able to use CRAR, nor are the assignees; because
to allow this would be inconsistent with the definition of a landlord. 2
A tenancy which permits the use of premises for a limited period but where the
tenant cannot assign their rights under such an agreement and the landlord maintains
the right to re-occupy the property on limited notice. 3 Such a tenancy is the
equivalent to a periodic tenancy and it occurs after a tenancy has expired but
before a landlord has served notice to recover possession. Sub
Tenants Much
like distress, under s 81 of the Act landlords can require sub tenants to pay
rent directly to them following service of a Notice. In comparison with the preexisting
common law procedure, CRAR is far more restrictive in that it only applies to
commercial properties and, unlike the law of distress, CRAR cannot be used where
the premises are of mixed use or purely residential. In
summary, the introduction of the CRAR procedure will not have too much of a unfavourable
effect on Landlords. Aside from the loss of some of the flexibility which has
been introduced via some strict requirements relating to rent and the use of the
premises, generally, Landlords will still have a valuable remedy available to
them. Whilst the requirement for a court order is still not required in all cases,
the service of notices in some circumstances may encourage both landlords and
tenants to attempt to negotiate a settlement without the need for heavy handed
tactics to be implemented or, alternatively, court costs to be incurred. As
for tenants, the impetus for such reforms being a Human Rights Act - compliant
system clearly benefits tenants who have in the past suffered abrupt and illegal
attempts of enforcement. The opportunity which is open to tenants to make applications
to the court following the service of a notice of enforcement is something which
has, to a degree, been there before; however, the setting out of these provisions
has leant clarification to exactly what a tenant's rights and remedies are. *Gemma
Hadlow is a solicitor with PainSmith Solicitors, a niche practice specialising
in residential landlord and tenant law. PainSmith
Solicitors Legal Advisors are provided for information only and are not legal
advice. If you do have a legal problem, you should talk to a lawyer or adviser
before making a decision about what to do. You
may wish to use the CLS/CDS Directory (www.justask.org.uk/public/en/directory)
to locate an adviser. The information provided here is written for people resident
in, or affected by, the laws of England and Wales only. You
should note that date given in the update and be aware that the information given
may become inaccurate due to changes in the law or its implementation. ________________________________ *See
also Section 13 Notices and Is the deal closed? The use of the 'Subject
to Contract' formula- For
full article Click
Here ________________________________ *See
also Safety Glass and Defective Premises Act - The Information on a
Court of Appeal decision (7th February 2007) regarding the Defective Premises
Act 1972 For full article Click
Here ________________________________ *See
also Implementation of the Regulatory Reform (Fire Safety) England & wales)
Order 2005 Click
Here ________________________________ *See
also Understanding
Business Tenancies June 2007 Click
Here ________________________________ *See
also Going Smoke Free - England July 2007 Click
Here ________________________________ *See
also Energy Performance Certificates in Let Property
- 29
January 2008 Click
Here ________________________________ *
Articles
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niche practice specialising in Landlord and Tenant Law. Based in Medstead in Hampshire,
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as well as those based in Central London and the Home Counties. Back
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