Understanding Commercial Rent Arrears Recovery (CRAR): A Landlord’s Guide
As a landlord, one of the biggest challenges you may face is dealing with commercial rent arrears. Non-payment of rent can cause significant financial strain and disrupt the smooth operation of your business. In such situations, it is important to know your rights and options for recovering the outstanding rent. This is where Commercial Rent Arrears Recovery (CRAR) comes into play.
What is Commercial Rent Arrears Recovery?
Commercial Rent Arrears Recovery (CRAR) is a legal process that allows landlords to recover unpaid rent from commercial tenants by seizing and selling their assets. It is governed by the Taking Control of Goods Regulations 2013 and can only be used for commercial properties, not residential ones.
Before CRAR was introduced, landlords had limited options for recovering unpaid rent from commercial tenants. They could either take legal action through the court system or try to negotiate a repayment plan with the tenant. However, these methods were often time-consuming and costly.
With CRAR, landlords have a more efficient and cost-effective way of recovering outstanding rent. It gives them the power to take control of their tenant’s goods and sell them to recover the unpaid rent.
How does CRAR work?
To use CRAR, certain conditions must be met:
1. Written lease agreement: There must be a written lease agreement in place between the landlord and tenant.
2. Minimum rent amount: The rent arrears must be equivalent to at least seven days’ worth of rent.
3. Notice period: The landlord must give the tenant at least seven days’ notice before proceeding with CRAR.
Once these conditions are met, here’s how CRAR works:
1. Notice of Enforcement: The landlord must serve a Notice of Enforcement to the tenant, informing them of their intention to use CRAR to recover the outstanding rent. This notice must be served by a certified enforcement agent.
2. Compliance period: The tenant has seven clear days from the date of the notice to pay the outstanding rent. If they fail to do so, the landlord can proceed with CRAR.
3. Taking control of goods: The enforcement agent will visit the property and take control of the tenant’s goods. They can only seize goods that belong to the tenant and are located on the property. The goods will be listed and valued, and a notice will be left on the premises stating that they have been seized.
4. Selling the goods: If the tenant still fails to pay the outstanding rent, the enforcement agent has the right to sell the seized goods at a public auction. The proceeds from the sale will then be used to pay off the rent arrears and any associated costs.
Benefits of CRAR for landlords
1. Quick and efficient: CRAR is a much quicker and more efficient process compared to taking legal action through the court system.
2. Cost-effective: As the tenant is responsible for paying the enforcement agent’s fees, CRAR is a cost-effective way of recovering unpaid rent.
3. Flexibility: Landlords have the flexibility to choose when to use CRAR, depending on their individual circumstances.
4. Encourages payment: The threat of CRAR can often encourage tenants to pay their rent promptly, avoiding any further action.
5. Limited liability: The landlord is not personally responsible for any costs or damages incurred during CRAR. The liability lies with the enforcement agent.
Challenges of CRAR for landlords
1. Limited in scope: CRAR can only be used for commercial properties and not for residential ones.
2. Minimum rent amount: The rent arrears must be equivalent to at least seven days’ worth of rent for CRAR to be used.
3. Notice period: The seven-day notice period may give tenants enough time to remove valuable goods from the property, leaving little to no assets to be seized.
4. Cost burden: If the tenant has limited assets, the landlord may end up with a significant cost burden, as they will be responsible for any remaining rent arrears.
Tips for landlords using CRAR
1. Keep thorough records: It is essential to keep accurate records of all rent payments and any communication with the tenant regarding rent arrears. This will help in case of any disputes or legal action.
2. Be aware of the tenant’s rights: The tenant has the right to apply for a court order to stop CRAR if they believe it is being used unfairly or incorrectly.
3. Communicate clearly: It is important to communicate clearly with the tenants throughout the process and provide them with all necessary information and documentation.
4. Consider other options: Before using CRAR, it may be worth considering other options such as negotiating a repayment plan with the tenant or seeking legal advice.
Conclusion
Commercial Rent Arrears Recovery is a powerful tool for landlords to recover unpaid rent from commercial tenants. However, it is essential to understand the legal requirements and potential challenges before using it.
As a landlord, it is crucial to have a written lease agreement in place and keep thorough records of rent payments and communication with tenants. By following the proper procedures, landlords can effectively use CRAR as a means of recovering outstanding rent and maintaining a healthy landlord-tenant relationship.