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On 6 April 2014 the ancient Laws of Distress, which had 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 (TCEA2007) which set out the basic details as to how CRAR would work. The Taking Control of Goods Regulations came into force in 2014.

Bailiffs are now known as enforcement agents.

Distress is now known as Taking Control of Goods. 

No, only an enforcement agent can take control of goods. 

Under the old laws landlords could distrain on tenants themselves, without enlisting the services of a bailiff. Under CRAR a landlord cannot take control and must instruct a certificated enforcement agent to do so on their behalf.

There are three ways by which an Enforcement Agent can Take Control of Goods under CRAR for commercial rent arrears.

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

• The agent can remove them and secure them elsewhere.

• The agent can enter into a controlled goods agreement with the tenant.

A controlled goods agreement replaces the old walking possession agreement. It 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.

Landlords and managing agents now need to act more swiftly than ever before, to avoid being caught out by the 7 clear days. During this period the tenant has a golden opportunity to avoid CRAR by removing their goods, or vacating the premises before the enforcement agent’s visit.

As soon as a tenant is in arrears, whether or not the landlord thinks they will pay after a few days, they should enlist the services of PBS immediately and instruct us to send the 7 day notice in order to start the clock ticking.

Delay could cost a landlord dearly.

1. Compliance stage – sending the 7 day enforcement notice– no charge to clients

If the tenant pays within the 7 days no further action is needed. PBS do not charge clients for this service, so the landlord has nothing to lose.  The tenant is charged a compliance stage fee of £75. If the landlord is registered for UK VAT, they must pay the VAT element of the fees, ie £15. If the landlord is not registered for UK VAT, the tenant must pay the £75 fee and the £15 VAT, making the cost £90.

If the tenant wishes to avoid further charges they must make contact with PBS during the 7 day period and pay the arrears in full, or offer a sensible payment proposal which will be subject to approval by the landlord or managing agent.

2. Enforcement stage – Taking Control of Goods – no charge to clients

If a tenant fails to pay within the 7 day period, on the 8th day PBS is able to go on to the next stage, taking control of goods and giving the landlord the upper hand.

PBS will send an enforcement agent to take control of the tenant’s goods and if necessary remove them to be sold to cover the arrears. The procedure is very similar to the old procedure under the laws of distress.

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

• For arrears of £1,500 and under –  £235 
• For arrears over £1,500 –  £235 plus 7.5% of the arrears outstanding minus the first £1,500
• VAT is treated in the same manner as above.

3. 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 outstanding minus the first £1,500. VAT payable as above.
• 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.

In exceptional circumstances a landlord can make application to the Court for an order giving their tenant less than 7 days’ notice, where they have good reason to believe that the tenant will dispose of goods in order to avoid those goods being taken into control by an Enforcement Agent. In practise this happens very rarely, but it is worth a landlord having the knowledge should it be required at some future date.

There is no charge to clients for this service, even if we are unable to recover the debt or our fee. Our fee is payable by the debtor.

We charge a fee of £50 + VAT, (£30 recovery fee + £20 admin fee) which is added to the debt and collected direct from the debtor, in accordance with Late Payment legislation.

For combined instructions, the service is also free to the debtor, providing they make payment in full within 7 days.

Yes CRAR can be exercised on sub tenant, provided the landlord has first served a Section 81 notice and provided that notice has expired.

A Notice of Enforcement cannot be sent immediately the rent falls into arrears. Before this can happen a section 81 notice has to be validly served, requiring the sub-tenant to pay the rent which it owes directly to the landlord rather than the intermediate tenant. This notice is referred to as a “Section 81 notice”.

The Tribunals, Courts, and Enforcement Act 2007 (“2007 Act”), Section 81 states that the notice should:

(a) be in writing and dated;

(b) be signed by the superior landlord and contain the landlord’s name, reference and contact details and the date of the notice;

(c) contain the amount of rent the superior landlord has the right to recover from the immediate tenant by CRAR;

(d) contain a confirmation that while the arrears remain, the sub-tenant must pay its rent directly to the superior landlord rather than the immediate tenant until the notified amount has been paid or the notice has been replaced or withdrawn;

(e) contain a confirmation that the landlord can withdraw the notice in accordance with Paragraph 55 of the ‘Taking Control of Goods Regulations 2013’ (“the Regulations”)

The notice must be served on the sub-tenant using the method prescribed under Regulation 8(1) of the Regulations. A section 81 notice takes effect 14 clear days after service of the notice.

An inclusive rent will often include an element in relation to rates, council tax, services, repairs, maintenance, insurance or other ancillary matters under the terms of the lease. If these items are included within the inclusive rent then they cannot be recovered under CRAR.

Where a landlord has an inclusive rent they must identify the amount payable for the use and occupation of the property in order to be able to exercise CRAR.

Similarly with regard to a turnover rent, although in most leases requiring payment of a turnover rent, the tenant will be paying a separate amount in relation to service charge etc. The landlord may therefore take the view that the whole of a turnover rent is attributable to the use and occupation of the property.

If the tenant pays monies to the landlord but does not specifically identify them as being payable in relation to the rent, then the landlord is free to allocate those monies as they see fit.

Accordingly, a landlord could allocate the monies to arrears of service charges, where the tenant may have intended them to be allocated to rent.

The tenant may challenge this.

Under CRAR only an enforcement agent can serve the enforcement notice on behalf of the landlord, therefore a landlord cannot add the notice to a rent demand.

Furthermore the landlord cannot instruct an Enforcement Agent to serve the notice until the rent is in arrears, meaning a landlord is unable to set out the wording in relation to an Enforcement Notice on the back of a rent demand.

This is dealt with in section 79 of the 2007 Act. For the purpose of section 79, the lease ends when the tenant ceases to be entitled to possession of the demised premises under the lease, together with any continuation of it by operation of any enactment or of a rule of law. So if the tenant is holding over under the Landlord & Tenant Act 1954, the landlord can still exercise CRAR.

Otherwise CRAR ceases to be exercisable when the lease ends, subject to the exceptions set out in section 79 (4) which include the following:

(a) The lease did not end by forfeiture.

(b) Not more than 6 months has passed since the day when it ended.

(c) The rent was due from the person who was the tenant at the end of the lease.

(d) That person remains in possession of any part of the demised premises.

(e) Any new lease under which that person remains in possession is a lease of commercial premises.

(f) The person who was the landlord at the end of the lease remains entitled to the immediate reversion.

There are difficulties in using CRAR to recover arrears of rent due in relation to a pub if part of the demised premises is let as a dwelling.

If part of the demised premises is let under a lease as a dwelling, let under an inferior lease as a dwelling or occupied as a dwelling, then it is not treated as a lease of commercial premises and the landlord cannot use CRAR.

So if premises demised by a lease of a pub include a dwelling, then the landlord cannot use CRAR.

However, if those parts of the premises which could be used as a dwelling, are either empty or being used for something else (eg storage) or if the lease does not permit their use as a dwelling, then CRAR is still exercisable.

The majority of leases require that the rent is paid on a particular date, either the quarter day or the first day of the month.

If historically the landlord has allowed the tenant to pay the rent late, then steps should be taken to make sure that the tenant knows that if the rent is not paid on the due date, according to the terms of the lease, then the landlord will be authorising an enforcement agent to serve notice on the tenant requiring that the rent is paid. 

CRAR within the 21 period before the right to forfeit arises

Landlords can accept payment of rent arrears, which fell due on the previous quarter date, without waiving the right to forfeit for non-payment of the current quarter’s rent. These are different quarters, payment being accepted on one and forfeiture being used on the other.

Forfeiture and CRAR are mutually exclusive and cannot both be used for the same arrears at the same time. But the right to forfeit for non-payment does not arise until 21 days have elapsed.
If CRAR is exercised before the 21 days elapse, the right for forfeit has not yet arisen and the landlord will not waive the right to forfeit.
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If the quarter day’s rent is outstanding, and the landlord receives part payment, but some is still outstanding after the 21 days, and no instalments have been agreed, the landlord can forfeit.
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If instalments have been agreed, but the tenant defaults after the 21 days have elapsed, the landlord still has not lost the right to forfeit.