A landlord’s ability to “levy distress” for unpaid rent by seizing a tenant’s goods from the leased premises has long been criticised. Indeed it was as long ago as March 1998 that the first detailed review of distraint was carried out by the Lord Chancellors Department, which resulted in a report produced in May 2002 recommending the replacement of this ancient remedy with a new statutory procedure known as Commercial Rent Arrears Recovery (“CRAR”).
The bones of this new remedy were set out in Part 3 of the Tribunals Courts and Enforcement Act 2007, (“TCE”) but despite a number of close shaves, to date that part of the TCE is still not in force and distraint remains a powerful remedy for landlords.
However, on 17 February 2012 the Ministry of Justice issued a further consultation on the question of distraint entitled “Transforming Bailiff Action”. Included with this consultation paper are many of the details missing from the TCE, and it now seems possible that CRAR could be nearing implementation.
The consultation paper basically recommends that Sections 71 and 72 of the TCE be implemented, although it does suggest some changes to the original system of CRAR set out in the TCE. If that happens then the existing common law right to distrain for rent arrears will be abolished, and will be replaced with CRAR.
The main changes can be summarised as follows;
- Only real rent (plus VAT and interest) can be included. It will no longer be possible to include other charges such as service charge or insurance which might be expressly reserved as rent under the lease.
- There must be a minimum sum of rent due equivalent to 7 days’ arrears, excluding interest and VAT.
- CRAR will apply only to purely commercial premises, not to mixed use premises.
- Before exercising his rights of seizure the landlord must first serve a Notice of Enforcement on the tenant, giving at least 14 clear days’ notice of his intention. This is probably the most controversial provision, and the consultation seeks views on whether or not a notice period, and in particular a notice period of 14 days, is acceptable.
- The consultation paper accepts that there may be situations in which tenants will use the notice period to remove their goods, and it is suggested that the Court should have the power to order a reduced notice period where there is a likelihood of the goods deliberately being removed or otherwise disposed of. How effective this right is likely to be is difficult to assess, not least because at present little detail is given as to the way in which such an application has to be made, and whether the application would be on notice. If the application has to be on notice this would, to a large extent, seem to defeat the purpose of the application.
- As at present a bailiff who seizes the tenant’s goods can do so by removing the goods from the demised premises or, more likely, by entering into a “controlled goods agreement” (currently known as a walking possession agreement), or alternatively securing the goods on the premises themselves.
- It is proposed that the enforcement agent will be able to enter the premises in order to effect CRAR on any day of the week between 6am and 9pm. Insofar as the premises are “open for the conduct of trade or business” beyond those hours then CRAR can be levied during that additional period. It may be difficult in some cases (offices for example) to decide whether premises are indeed “open for business”.
- The proposals also include restrictions on the sale of the goods. In particular the enforcement agent must give the tenant a written valuation of the goods before selling them, and there must be a delay of at least 7 days before the goods can be sold.
- The current right of a superior landlord to serve a Notice on any sub-tenants pursuant to Section 6 of the Law of Distress (Amendment) Act 1908 will be preserved in a slightly amended form. The new form of Notice must be in writing containing certain prescribed information, and will take effect 14 days after it is served, as opposed to immediately as is now the case.
This note is not intended to be a comprehensive review of the proposals contained in the TCE and the consultation paper, and the full paper can be accessed at https://consult.justice.gov.uk/digital-communications/transforming-bailiff-action/consult_view. The consultation period closes on 14 May 2012.