CRAR: a refresher and note on recovery of non-rent arrears
An enquiry has recently been raised of Rollits' Property Dispute Resolution Team as to how, following the introduction of CRAR, outstanding service charge can be recovered.
I have not set out here the procedure to be followed when exercising CRAR. That will, if there is demand for a refresher of the CRAR procedure, form the subject of another article. Instead, I have focussed here on when CRAR can be used, and provided some guidance as to what to do if CRAR is unavailable.
So what is CRAR?
By way of a reminder, CRAR (Commercial rent arrears recovery), which came into force on 6 April 2014, is a method of enforcement to recover rent arrears relating to written tenancies of commercial properties. It is important to remember that CRAR will only apply to a tenancy of a property if the property in question is let and used for commercial purposes. Therefore, it is not available where a property is let for mixed use, such as a property comprising a ground floor shop and residential flat above.
What is "Rent"?
CRAR can be exercised to recover outstanding rent, but what is "rent"? The Tribunals Courts and Enforcement Act 2007, which together with the Taking Control of Goods Regulations 2013 governs CRAR, defines "rent" as
"the amount payable under a lease (in advance or in arrear) for possession and use of the demised premises, together with
(a) any interest payable on that amount under the lease, and
(b) any value added tax chargeable on that amount or interest.
Section 76(1) TCEA 2007
Section 76(2) TCEA 2007 also makes clear that "rent"
"does not include any sum in respect of rates, council tax, services, repairs, maintenance, insurance or other ancillary matters (whether or not called "rent" in the lease)".
Recovery of non-rent arrears?
Given the limited scope of CRAR, when faced with non-rent arrears such as outstanding service charge or insurance payments, assuming that a reminder that the monies are due has not resulted in payment, a landlord has 3 options: pursuing a county court debt claim and forfeiture.
County Court claim
Just as with any other commercial debt, a Landlord can pursue a Tenant's unpaid service charge or insurance payment through the County Court. The benefit of a county court claim is that it provided a means for recovery of the monies due, whilst leaving the lease in place.
Whilst the process can be cumbersome due to delays in the Court system and will incur additional costs, if the claim is successful, the Landlord will have a County Court judgment for the original debt and often interest and costs. The judgement can then be enforced in a range of ways, including seizing goods, third party debt orders and bankruptcy/liquidation.
On the subject of bankruptcy/liquidation, depending on the value of the debt, a Landlord may, if the debt is an agreed debt and simply has not been paid, simply issue a statutory demand or winding up petition (depending on whether the tenant is an individual or otherwise). Advice should be taken before taking this course of action, however, give the potential consequences of doing so.
If the non-rent liability has been reserved as rent under the lease - in modern leases service charge and insurance payments due from a tenant often fall under the umbrella term of rent - it may entitle the Landlord to forfeit the lease, provided the lease is in writing and it contains an express forfeiture clause. It should also be remembered that whilst most leases expressly state that a demand for rent is not needed before forfeiture can occur, most leases require service charges insurance etc to be demanded before they are formally due.
Forfeiture, which can be exercised by changing the locks or by issuing court proceedings without needing to give notice of the breach or the intention to forfeit the lease, can be a powerful weapon for a Landlord, but it is one that should be wielded carefully. Once forfeited, unless the Tenant applies for relief from forfeiture, the lease is brought to an abrupt end and it is not possible for the parties between themselves to resurrect the lease, that being a power that rests solely with the Court.
Finally a word of warning. Whilst a Landlord may have a right of forfeiture arising from non-rent arrears, Landlords need to be careful not to waive that right. Like the CRAR procedure, waiver is an article subject in itself - look out for our waiver article which is coming soon.
As always, the terms of the lease are critical and will need to be carefully considered before taking any action arising from any unpaid liabilities owed by a tenant.
If you have any queries arising from this article, would like to suggest a topic for a future article or wish to discuss a contentious property issue, contact Chris Drinkall, Head of Rollits Property Dispute Resolution Team on 01482 337367 or firstname.lastname@example.org
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.