Date:  27 October 2008

TRIBUNALS COURTS AND ENFORCEMENT ACT 2007 – PLUS CA CHANGE?

Commercial Rent Arrears Recovery

The Tribunals, Courts and Enforcement Act received Royal Assent in July 2007, containing certain provisions to abolish distress for rent and to introduce a replacement statutory procedure known as a Commercial Rent Arrears Recovery (“CRAR”) intended to impose a modern day system which will allow commercial landlords to instruct enforcement officers
(i.e. bailiffs) to collect arrears of rent.

If a landlord seeks to utilize this statutory remedy they will be required to follow a more stringent procedure which involves
the satisfying of some strict pre-requisites including the service of a “Notice of Enforcement”.

The new procedure is being introduced so that English law will comply with the European Convention on Human Rights. The requisite provisions are not yet in force at the date of this article (so you are still OK to distrain for the moment) but it is anticipated will be implemented later this year, once enabling regulations are passed. 

Firstly a landlord seeking to utilise the new procedure must satisfy the definition of such party in Section 73 of the Act, i.e. that such person is entitled to the immediate reversion in the property concerned.  That landlord must have a written agreement with the tenant, verbal agreements will not be sufficient to permit the landlord to seize and sell. 

There must be a true lease in place, a mere written licence will not be sufficient.  Unless exclusive possession has been granted with a clear landlord and tenant relationship established then CRAR will not be available.  A tenancy at will will be sufficient but a tenancy under sufferance will not and is specifically excluded under Section 74 of the Act. 

CRAR cannot be used where a part of the premises is let as a dwelling and is only available where the premises are used solely for business purposes.  However if the property is used as a dwelling in breach of the lease terms then CRAR may still be available.

CRAR relates solely to the recovery of rent in the strictest sense i.e. the payments due to the landlord for possession and use of the premises, together with VAT and interest (if the Lease so provides).  Commonly in commercial leases the definition of rent is extended to include service charge, insurance rent, and other payments that may be from time to time become due to the landlord.  CRAR will not be available for service charge and such other payments, only rent VAT and interest thereon. 

Law of Distress Amendment Act 1908

Another historic and well understood remedy that will also be abolished by the Act (when fully implemented) is that right for a head landlord to serve notice upon an undertenant under Section 6 of the Law of Distress Amendment Act 1908 requiring payment of rent directly to the head landlord until its tenant’s debt is discharged.

This process is to be replaced by Section 81 of the Tribunals, Courts and Enforcement Act 2007. Thankfully whilst the Act and its regulations may impose the form of the notice and its contents and make provision for service and withdrawal, essentially the process will be to similar effect as the existing Law.

Void Provisions

Section 85 of the new Act makes it clear that the provisions of any contract (including lease) will be void to the extent that they seek to extend or modify a landlord’s rights in these respects.  Essentially therefore it will not be possible to insert provisions in a lease to for instance try and return the landlord’s rights of distress to the previous law etc.

Conclusion

It is regrettable that the process akin to distress will no longer be available to a landlord except in relation to rent as described above. Further, as the CRAR action must be preceded by Notice of Enforcement the landlord has lost the element of surprise in distress that it currently enjoys, and runs the risk of the tenant removing its goods before the bailiff can seize them. 

A commercial landlord will have to look to its other remedies in respect of arrears of service charge and other payments that fall due. 

Commercial landlords will need to make sure that they operate within the new regime.

We can help.

For further advice please contact our Property Litigation Partner Richard Davis or our Commercial Property Partners Clive Vernon and Roger Williams

Clive Vernon