The Tribunals, Courts and Enforcement Act 2007, introduced on 19 July 2007, prospectively abolishes the right to distrain for non-payment of rent. The remedy of distress currently allows landlords to recover rent arrears without going to court by taking goods from the demised premises and either holding them until the arrears are paid or selling them.
A new procedure will be introduced known as Commercial Rent Arrears Recovery (CRAR). The provisions are yet to be brought into force. The key points of the new remedy, as contrasted with distress, are set out below.
- CRAR applies to commercial premises only. This excludes premises let in whole or in part as a dwelling.
- It applies to leases only, not licences.
- CRAR may only be used for rent, in the narrow sense, together with any interest and VAT. It may not be used for arrears of service charge, insurance, rates, sums in respect of outstanding repairs or any other sums reserved as rent by the lease.
- It can only be used where the net unpaid rent exceeds a minimum sum (yet to be determined by regulations).
- The Landlord will instruct an enforcement agent (previously known as a certificated bailiff), who will then serve an enforcement notice on the tenant.
- Goods cannot be seized until a period required by the Act (to be prescribed by regulations) has expired. However, the goods are bound by the notice as soon as it is served, and remain bound until sold or until the debt is paid.
- The remedy applies only to goods that are owned by the tenant. Certain goods will be exempt, and control should not be taken of goods the value of which is deemed excessive.
- The enforcement agent must provide the tenant with an inventory of goods over which he has taken control.
- It is open to the tenant to enter into a controlled goods agreement (formerly a walking possession agreement) whereby he acknowledges that the agent has taken control of the goods and agrees not to remove or dispose of them (or permit anyone else to do so) before the debt is paid. The agent may visit the premises from time to time to check on the goods.
- The goods cannot be sold before the end of a minimum period (to be set by regulations). Prior to this, the enforcement agent must obtain a valuation of the goods and allow the tenant to obtain an independent valuation if it so wishes.
- The enforcement agent must sell the goods for the best price that can reasonably be obtained, and the sale must be by public auction unless the court otherwise directs.
- A third party who claims to own the goods may apply to the court for relief and the court has power to set aside or postpone the enforcement notice pending determination.
- A landlord will be able to use CRAR for a period of up to six months after the expiry of a lease, provided the tenant remains in occupation of part of the premises. This will not apply where the lease was ended by forfeiture.
- There are equivalent provisions to the current “Section 6 Notice”, whereby a head landlord can compel subtenants to pay their rent directly to the head landlord. However, this does not apply to licensees or lodgers.