A Distressing Change? What the new CRAR regulations might mean for you

New regulations that come into force last week, dramatically change the ways in which landlords can recover commercial rent arrears and could significantly change relationships between owners and tenants.

What has changed?

Since the ‘remedy’ was first enshrined in Article 61 of the Magna Carta, landlords have been able to deal with defaulting tenants through the common law remedy of distress. This has meant that landlords have been able to enter the premises in question and seize and then sell a tenant’s goods in order to recover the sums owed. This remedy has worked well for landlords as it has been long established, understood by all parties and has the benefit of being quick and efficient. As of the 6 April, this remedy has ceased to exist and is replaced by CRAR, a procedure that appeared first in the Tribunals Courts and Enforcement Act 2007.

What are the implications for Landlords?

Since the new regulation, CRAR, is narrower in scope than the old approach it is likely to be less useful to landlords. Our Debt Recovery Partner, Graeme Weir, takes up the story: “CRAR differs from distress in a number of critical ways. Perhaps most significantly, under CRAR, landlords are now required to give tenants at least 7 clear days’ notice of their intention to commence CRAR proceedings.” And what will the likely result of this procedural change be? Weir continues “From the landlord’s point of view, the notice period requirement basically functions as a fixed-period ‘window’ within which the tenant can empty the property of any items of value! So probably unlikely to be welcomed by landlords.”

In addition, this isn’t the only element of the new regulation that may not be welcomed by landlords: Under CRAR, employing a Certificated Enforcement Agent to effect immediate forfeiture/possession cannot be used where any part of the premises is residential. Consequently, landlords with mixed use High Street properties, with retail units at ground level and residential apartments above, all held under one lease, will have no recourse to seeking immediate forfeiture of the lease and repossession of the premises without a court order under CRAR.

Conclusions

Probably the major likely impact of the new regulation will be that landlords will use the CRAR procedures less often than they currently exercise distress. Graeme Weir concludes: "Since the new scheme applies to all leases of commercial premises, landlords would be well advised to keep themselves up to speed with its full implications. In particular, landlords should bear in mind the CRAR requirements for a written tenancy, grant separate leases for the commercial and residential parts of a property and try and avoid granting leases with all-inclusive rents. So I would suggest that landlords ought to be talking to their legal advisers about their existing agreements and how any new ones should be drafted, in particular as regards tenant referencing and credit checks so as to limit the instances when action is necessary."

For further information please contact Graeme Weir

To read more about this and other property issues, go to our Law & Impact blog and see our ongoing ‘Development Debate’ articles.