Commercial Rent Arrears Recovery (CRAR) came in to effect on 6 April 2014 and has significant implications for landlords. CRAR replaces distress, which involved the appointment of a Bailiff to attend at the property to seek payment or seize goods. The main advantages of distress were its simplicity, speed and relatively low cost for landlords. However, under CRAR, seven clear days notice is required prior to goods being taken from the property, taking away any element of surprise.
Is CRAR just tenant friendly distress?
It is more than a ‘watering down’ of distress – unlike distress it can not be used for unpaid service charge, insurance, interest and other items that aren’t ‘commercial rent’. While alternative and effective remedies are still available for non-rent items, the previously favoured option of distress is no longer available.
CRAR only applies to commercial rent, so the split between rent and other costs should be clearly defined in the lease. If it is not, CRAR is unlikely to be available. This could effect properties let on inclusive rents, where the ‘rent’ due under the lease includes other costs such as electricity, heating, water, insurance, repairs, maintenance and rates.
CRAR is not available if the lease includes residential accommodation. Consider a flat above a shop let under a single commercial lease – where distress would have been an option, CRAR is not. A solution could be letting the commercial and residential elements separately where they are self contained. However, for many non-self contained properties this will not be feasible, the typical takeaway or restaurant and flat being a prime example.
In conclusion – 5 Tips for Landlords
1 – Prevention vs Cure
Ensure you know your tenant – undertake due diligence before granting a lease, including references and credit checks on new tenants.
2 – Deposit and Guarantors
Obtain a rent deposit and seek guarantors where possible.
3 – Clarify the Commercial rent element
Ensure the amount relating to the commercial rent is clearly defined and separate from other amounts payable under the lease.
4 – Residential
Try to let any residential accommodation under a separate lease to the commercial parts.
5 – If in doubt, get advice
Ensure you have a good team behind you to facilitate the most effective remedy. Arrears can quickly build up. Specialist professional and legal advice can pay dividends to resolve difficult and often confrontational situations such as rent arrears.