Updated: 15th January 2020
Published: 15th January 2019
During the lifetime of your company, your business may experience financial difficulties as a result of low cash flow, a drop in sales and competition in the market, leaving you with outstanding rent payments. If your business is in financial distress and you can’t pay the rent, your landlord can take action against you to recover rent arrears.
The reform to rent recovery legislation, Commercial Rent Arrears Recovery (CRAR), means that your landlord can seize your goods with prior notice of 7 days if you cannot pay your business lease. This gives enough time to negotiate a financial plan which works for both parties. If unsuccessful, this time period can be used to explore restructuring options with a licensed insolvency practitioner to rescue your business and protect company assets.
Commercial Rent Arrears Recovery, often referred to as CRAR is a legislative measure which replaced the law of distress on 6 April 2014. If the rent for a commercial property falls into arrears, the landlord is able to take control of the tenant’s goods and sell them to recover the outstanding rent.
The premises should be wholly for commercial use, not mixed or residential use. For example, if the property is commercial downstairs, but comprises of an apartment upstairs, CRAR will not be enforceable.
The prescriptive measure sets out a procedure which can be followed by the landlord of your commercial property to collect unpaid rent. We set out what action a landlord can take to recover commercial rent arrears and your rights and responsibilities during the proceedings if you cannot pay rent to your landlord.
In order for the commercial landlord to successfully enforce CRAR, the following conditions should be met:
Under CRAR guidelines, the landlord must give the following notice to the tenant before a bailiff acting on behalf of the landlord can enter the commercial premises. ‘Clear days’ exclude Sundays and bank holidays.
Bailiffs entering the property should do so in a peaceful manner, using normal means. For example, using doors or loading bays, not windows. Bailiffs are only able to call at the commercial premises between 9:00am to 6:00pm, unless your business is operational out of hours. Once bailiffs enter the property, they are not required to give you time to pay, unless agreed with the landlord.
If you are unable to come to an agreement with the landlord as you can’t pay rent, the bailiff will be able to seize goods belonging to you, or the group of people responsible for paying the rent. The goods which are exempt are as follows:
Goods jointly owned by you and a business partner can be taken. If your share of a joint rent payment is in arrears as you can’t afford to pay the rent, the bailiff is allowed to take your share of goods.
If a bailiff takes control of any exempt goods, a court claim can be made, requesting for the goods to be returned.
If you negotiate a repayment plan with the landlord, also known as a controlled goods agreement, the goods will remain with you. The arrangement will consist of either paying your outstanding debt in instalments until the commercial debt is cleared or making a bulk payment. If a controlled goods agreement is broken, you are entitled to 2 days’ clear notice for the bailiff to return and take control of the goods.
If you cannot pay the landlord, your goods will be removed and typically sold at an auction. Alternatively, under order of the landlord, the bailiff can lock up the goods and even seize control of the business premises.
You are required to receive the following notice 7 clear days before your goods are sold:
As the tenant of a commercial property in rent arrears, CRAR can be used against your business, leaving your commercial assets vulnerable and at risk. If CRAR is not applicable, the landlord is able to take court action to recover arrears, which could cost you in court fees.
If your business is in financial distress and you cannot pay your business lease, rescue options such as restructuring or turnaround can help transform your business into a profitable enterprise. Get in touch with a licensed insolvency practitioner at Real Business Rescue today on 0800 644 6080 to arrange a free, no-obligation consultation.