A Little Bit of History 

Commercial Rent Arrears Recovery

On 6 April 2014 the ancient Laws of Distress, which had long been in need of modernisation, were replaced by a new regime known as Commercial Rent Arrears Recovery (CRAR).

The process of change began in 2007 with the Tribunals, Courts and Enforcement Act 2007 (TCEA 2007) which set out the basic details as to how CRAR would work. The general election came and all appeared to go quiet until, in July 2013 the Taking Control of Goods Regulations 2013 were published, paving the way for CRAR.

The Enforcement Notice giving tenants 7 days to pay.

The old laws of distress enabled a landlord or managing agent to ‘distrain’ for rent as soon as the rent was overdue, eg the day after quarter day, with no warning to the tenant.

The biggest and most fundamental change under CRAR is the 7-day Enforcement Notice. Under CRAR, tenants must be given 7 clear days in which to pay, in the form of the enforcement notice, which PBS will send by post and where possible email.

CRAR cannot be used to collect service charges & insurance

Only pure rent, VAT and interest can be collected under CRAR.  Under the old laws a landlord could distrain for service charges and insurance, but under CRAR these charges do not qualify and must be collected as a debt. PBS offer a free debt collection.

Three stages of CRAR and the costs

i. Compliance stage

Sending the 7 Day Enforcement Notice (no charge to clients)

If the tenant pays within the 7 days, then all well and good – PBS do not charge clients for this service, so the landlord has nothing to lose.  The tenant is charged an enforcement fee of £75. If the tenant is wise they will contact with PBS during the 7-day period and pay the arrears in full, or make a payment arrangement and pay the enforcement fee. £75 for this service is not unduly harsh for most tenants, who are more than happy to pay to avoid the much higher charges which apply if they delay. 

ii. Enforcement stage

Taking Control of Goods (no charge to clients)

If a tenant fails to pay within the 7-day period, on the 8^th day PBS is able to go on to the next stage, taking control of goods and giving the landlord the upper hand. Under CRAR there are three ways by which an Enforcement Agent can Take Control of Goods:

1. The agent can secure the goods on the premises on which he or she finds them.

2. The agent can remove them and secure them elsewhere.

3. The agent can enter into a controlled goods agreement with the tenant. A controlled goods agreement is an agreement under which the tenant is permitted to retain custody of the goods, but acknowledges that the enforcement agent has taken control of them and agrees not to remove or dispose of them, nor permit anyone else to, until the debt is paid.

The costs set out by CRAR for this second stage of enforcement are as follows:

• Where arrears are £1,500 and under the tenant will be charged a further £235,making the total charge £310.
• For arrears over £1,500 the tenant will be charged an extra £235 plus 7.5% of the arrears outstanding minus the first £1,500.

iii. Disposal stage

Removing and selling goods

If, once the landlord has taken control of goods, the tenant fails to pay, or defaults on a payment arrangement, the landlord can instruct PBS to remove and sell the goods to cover the arrears. A 48-hour default notice must first be sent to the tenant, giving them the opportunity to bring things up to date before any removal action can begin.

The costs to the tenant for this stage of enforcement are as follow:

• Disposal stage fee of £110 plus 7.5% of the sum to be recovered minus £1,500.
• The auctioneer’s commission and out of pocket expenses.
• Storage costs.
• Reasonable disbursements incurred in respect of advertising the sale.

The threat of removal is often the landlord’s most effective weapon, and a landlord should not be afraid to take advantage. However, it is worth considering the likely outcome of a sale before embarking on a removal, as any shortfall will be payable by the landlord.