Distress is an ancient “self-help” remedy that entitles commercial and residential landlords to seize, impound and sell goods from the premises leased to a tenant in order to recover outstanding rent.
The landlord is not required to provide any notice of the seizure to the tenant, and the tenant is therefore taken unawares by the landlord’s pre-emptive strike; in fact, a certified bailiff can attend premises within as little as 24 hours of the rent falling into arrears. This means that tenants are less able to hide or otherwise dispose of their possessions in advance of the enforcement, making this an important and effective method of securing payment.
Abolition of distress
Part 3 of the Tribunals, Courts and Enforcement Act 2007 (“TCEA”) will abolish the landlord’s common law right to levy distress for rent. The relevant provisions, though not yet in force, received Royal Assent on 19 July 2007 and may be implemented later this year.
In replace of distress, TCEA introduces a new statutory procedure called Commercial Rent Arrears Recovery (“CRAR”). CRAR is different from distress in many ways and is therefore likely to have a significant impact on landlords.
The new CRAR regime
The most important changes to note under CRAR are as follows:
- Only landlords of commercial premises that have granted written leases will be entitled to use CRAR; commercial landlords with oral arrangements and all residential landlords will not have access to the new procedure. The practical impact on many landlords will therefore be that they can no longer rely on distress and will need to look to other, more expensive, methods of enforcement;
- For those landlords qualifying under the CRAR scheme, there exist further changes. An important distinction is that, unlike distress, landlords under the new regime will be required to give their tenants notice before exercising their rights under CRAR. The exact length of the notice period is yet to be confirmed, though the current suggestion is that a period of between 7 and 14 days’ notice will apply. This will clearly come as a disappointment to landlords, many of whom have argued that the requirement to give notice will frustrate the recovery process as tenants “prepare” for the visitation by removing their possessions in advance. Furthermore, upon receipt of the landlord’s notice, a tenant is able to apply to set aside or stay the enforcement, thereby further delaying payment and putting the landlord to additional costs;
- It is also fundamental to note that CRAR will only assist with the recovery of “pure” rent arrears, and will not be applicable to sums due in respect of rates, service charges, repairs, maintenance or insurance – even if those sums are reserved as “rent” in the lease. This is a significant change to the current position, where a landlord is entitled to levy distress for all sums which are specifically reserved as rent;
- Finally, the rent arrears must be: (1) over a minimum amount (as yet undefined); and (2) certain or capable of being calculated with certainty. Currently, distress can be levied upon any amount of rent outstanding, and no minimum amount applies. The requirement that the debt is for a certain amount may also present landlords with difficulties as, although this is not a new requirement, the fact that CRAR only applies to “pure” rent may mean that it is not easy to distinguish what the debt is for (e.g. rent or service charges) and therefore the remedy will be barred for uncertainty.
Preparing for CRAR
In readiness for the upcoming changes, landlords may wish to consider implementing any or all of the following:
- So as to avoid uncertainty, leases should clearly define the rent that is payable by the tenant in respect of possession and use on the one hand, and those other sums which are payable for service charges, rates and so forth, on the other;
- In order to ensure the availability of CRAR, landlords should consider having separate leases in respect of the residential element of premises and the commercial element of premises;
- Landlords should review their current policies for tenant referencing and credit checks so as to limit the instances in which enforcement action is necessary.