The Tribunals, Courts and Enforcement Act (the “Act”) received royal assent on 19 July 2007 and is likely to come into force in the near future. Part 3 of the Act introduces a new method of commercial rent arrears recovery (“CRAR”), abolishing the law of distress. Although the Act is not yet in force, and Regulations under the Act have not been published, this new method of recovery will soon have far reaching consequences for all landlords and tenants.

THE NEW PROCEDURE

At present, the law of distress allows landlords to enter leased property and seize goods as security for the payment of arrears (usually rent). If the tenant refuses to discharge the arrears, the landlord can sell the seized property to realise the money due. The landlord can use this remedy without applying to the court for assistance.

The key points of the new CRAR procedure are:

CRAR will only be exerciseable when overdue rent exceeds a minimum amount.

A notice of enforcement has been received by the tenant. 

Landlords will no longer be able to enter premises themselves and take goods. CRAR can only be used by enforcement agents, who must be certified under the Act.

Regulations, which are yet to be finalised, will stipulate a minimum period of notice to be given, the form of notice, what it must contain, how it must be given and who must give it. Once the notice has been given the debtor goods will become “bound” until they are sold or the outstanding amount is satisfied.

THE EFFECT OF THE CHANGES

CRAR, unlike distress, will require the service of a notice. This will not only provide the tenant with a right to apply to court to intervene, but will also give the tenant ample warning to move goods to a safe location should they so wish. Landlords will still have recourse to pursue the goods that have been moved, but this is likely to increase the time and costs involved. CRAR is tenant-friendly. Landlords should keep in mind that their ability to recover arrears is likely to become more difficult when CRAR is in force.

ANTI-AVOIDANCE

It will not be possible to include in a lease a contractual right to distrain in terms which are different to CRAR.