A recently announced shake-up of the regulations governing the collection of rent arrears will severely limit landlord’s rights to levy distress, according to commercial property agent Prop-Search.
Samantha Jones of Prop-Search
The shake-up follows the government’s consultation on reforms to the bailiff industry issued in February 2012. Now it has been announced that the delayed Part 3 of the Tribunals, Courts and Enforcement Act will be implemented as early as this summer.
This includes a new procedure for Commercial Rent Arrears Recovery (CRAR) and Prop-Search warns that this could lead to landlords being forced to use more expensive methods of recovery such as litigation or insolvency.
Under the current rules commercial landlords are able to levy distress for rent arrears against the tenant’s goods and chattels on the land covered by the lease.
In limited circumstances distress can even be levied against goods that are no longer on the property. This could apply when a tenant has fraudulently moved goods elsewhere to prevent the landlord distaining them, for example.
In order to recover outstanding rent a landlord will usually instruct a certified bailiff to seize goods to the value of the arrears. There are laws governing how bailiffs must behave, but the general outcome is that any goods found in the property are listed and the tenant is given five days to settle the arrears, after which the goods can be sold at public auction.
Samantha Jones, a surveyor at Prop-Search, explains that the introduction of CRAR will require landlords to serve tenants with a notice of enforcement which will give them the benefit seven working days before bailiffs are allowed to attend. This, she says, will remove the ‘”short, sharp shock of distress” and allow tenants to set aside or stay enforcement.
Furthermore, landlords will only be able use CRAR when a tenant has defaulted on ‘pure rent’ which excludes any insurance premiums or service charges that may be included in the terms of the lease.
“Having to provide the tenant with notice could also enable tenants to remove goods from the property before the bailiffs attend.
“The court can reduce the period of notice if there is a concern that the tenant will avoid enforcement if given too much notice, but having to make such an application to court will also increase the landlord’s legal costs,” Samantha adds.
Landlords should also note that they will not be able to use CRAR to recover nominal arrears as the regulations will specify a minimum amount. In addition CRAR does not cover leased commercial property that includes residential accommodation. In light of this Prop-Search’s advice to landlords is to consider separate commercial and residential lettings where applicable.
An unforeseen consequence of the new regulations could see landlords passing on the potential costs to tenants, in the form of seeking higher deposits or more robust guarantees, Prop-Search warns.
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