Can your landlord take your assets in lieu of rent?
Many will recall the days of old where landlords were able to waltz into commercial premises and secure any overdue debt by distraining over assets for unpaid rents. This often left the directors or owners of the business in a quandary. But in this quandary you had choices:
- Negotiate and/or rob Peter to pay Paul and the distraint might go away.
- Don’t pay the landlord and risk goods being lawfully removed and sold at a fraction of the cost at auction.
- Speak with an insolvency practitioner and enter a formal insolvency process (such as liquidation) in a bid to beat the landlord to the goods.
None of these choices solved the problem and none were choices that any tenant wanted to be faced with or make.
It was recognised that the system was unfairly balanced in the landlord’s favour. No other creditor had the power of a landlord to distrain and enforce seizure (save for the Crown) and things had to change.
In addition, from an insolvency practitioner’s perspective, how could we help to rescue a manufacturing business that had no presses or lathes and could not manufacture? Put simply, we couldn’t. If the goods were seized, there was often no business to save, all employees were made redundant and any goodwill in the business dissipated within hours or days.
Accordingly, the law eventually caught up and the balance of creditors’ rights was addressed.
In April 2014, the Commercial Rent Arrears Recovery (“CRAR”) legislation was introduced.
CRAR has been with us just over a year now and, from an insolvency practitioner’s perspective, helps to maximise the options available to rescue a company that is in difficulty. The main points of CRAR are:
- CRAR only applies to leases of commercial premises and can only be used if the lease is in writing. It does not apply to residential premises or where part of the premises are used for residential purposes.
- CRAR only applies to the main rent, VAT and interest. It does not apply to other payments that may be entitled rent such as service charges, insurance premiums and rates.
- CRAR can only be exercised by certified enforcement agents and the tenant must be given seven days’ notice of the intention to use CRAR.
- The tenant must be at least seven days in arrears before CRAR can be used.
- In addition, there is guidance about tenants’ goods which cannot be seized. Once goods have been seized, the tenant must be given an inventory of those goods by the enforcement agent. The seized goods must be valued within seven days and then sold or disposed of for the best price that can reasonably be obtained but not before the expiry of the seven day period.
- If the landlord has a right to forfeit, exercising CRAR will mean they waive that right.
CRAR must be tackled correctly if you are defending yourself as a tenant or using it to recover monies as a landlord.
Whatever your position, if you are a tenant with unpaid rents or if you are a landlord with uncollected rents and wish to talk about your options, please do get in touch for a free initial consultation, which is in confidence and without obligation.