The Government has finally moved forward with reforms to the common law remedy of distress which were first proposed by the Tribunals Courts and Enforcement Act 2007. At long last, having first consulted with "Transforming Bailiff Action", the procedure under CRAR ('Commercial Rent Arrears Recovery') has been revealed in the Taking Control of Goods Regulations 2013 (the "Regulations").
Published on the 30th July 2013, the Regulations are due to come into force on the 6th April 2014. Landlords will not be pleased that their ancient common law remedy has been significantly diluted. Tenants, on the other hand, have long argued that the remedy of distress has operated unfairly in favour of landlords and that significant changes were required.
The Regulations seek to impose a CRAR process that strikes a balance between landlord and tenant and modernises current practice. The main changes that we seek to highlight are in relation to the procedures that enforcement agents (better known as bailiffs) must follow when taking control of a tenant's goods. These are:
- The Regulations introduce a minimum period of notice before an enforcement agent can seize any goods belonging to a tenant. Landlords must now give their tenant seven clear days' written notice (with required information such as name and address of the landlord and the nature of the debt) before taking any goods. The clear days' notice period does not include the day on which the period begins, Sundays, bank holidays, Good Friday or Christmas Day;
- "Controlled goods agreements" replace the present "walking possession" procedure. There are also detailed rules for selling and dealing with a tenant's goods after the enforcement agent has removed them;
- Landlords will not be able to use the CRAR process in order to enforce payment of service charges or other sums, even if they are reserved as "Rent" within the relevant lease. CRAR can only be used to recover principal rent (in addition to VAT and interest);
- Enforcement agents are unable to exercise CRAR where the premises include a part that is used for residential purposes;
- The Regulations have confirmed the category of goods that are exempt from seizure by an enforcement agent. Goods that are necessary for a tenant's business up to the value of £1,350 and goods that are owned by third parties (including sub-tenants) will not be subject to CRAR.
- A number of rules regulating how enforcement agents can enter and secure a tenant's property are also laid out in the Regulations;
- Finally, if a landlord serves a notice on a sub-tenant to redirect any outstanding rent, it will now take effect 14 clear days after the notice is served on that sub-tenant.
Whilst the common law remedy of distress proved unpopular with commercial tenants, the new CRAR rules are undoubtedly more in their favour. The new procedures significantly reduce the sometimes draconian effects of distress that we currently see. We anticipate that these changes will result in landlords seeking recourse to alternative methods for the recovery of arrears, such as court proceedings