5 Key Points for UK Landlords
In today’s economic climate, commercial rent arrears remain a significant challenge for landlords and / or here property management companies. Whilst most tenant relationships are built on trust and mutual benefit, financial pressures, cash flow difficulties, and economic uncertainty can lead to missed rental payments. When this happens, landlords must take swift but measured action to protect their investment while remaining compliant with legal requirements. A non-paying tenant is no longer an asset.
Understanding the options available for commercial rent arrears recovery is essential for achieving the best outcome and minimising financial loss.
Key points I’ll cover in this post include:
- CRAR requires a written lease, wholly commercial premises, and at least seven days’ net unpaid rent.
- Seven clear days’ Notice of Enforcement must be served before an enforcement agent attends.
- CRAR recovers principal rent only — service charges, insurance and rates fall outside it.
- A rent deposit is the fastest route where the lease permits a drawdown.
- Forfeiture ends the lease and rules out CRAR, so it suits landlords who want the unit back.
What Are Commercial Rent Arrears?
Commercial rent arrears arise when a tenant fails to pay rent due under a commercial lease. Unlike residential tenancies, commercial leases often provide landlords with a range of enforcement remedies, provided these rights are exercised correctly and in accordance with current legislation.
The longer arrears remain outstanding, the more difficult recovery can become. Early intervention is therefore critical. This is very true from the enforcement side, the older and higher the debt generally speaking the harder it is to collect. However, every industry and business is different, so a measured approach is key. A florist owing 6 months rent, for example of 12k is much harder to collect, and much harder for the tenant to get out of when one factors in it’s a smaller cash business, low value takings per head, than say a larger business owing 45k for 3 months’ rent, who’s invoices would be much higher.
Identifying the Cause of Arrears
Before commencing enforcement action, landlords should seek to understand why payments have been missed. Common causes include:
– Temporary cash flow problems
– Business downturns
– Poor financial management
– Disputes with suppliers or customers
– Insolvency concerns
The key to the above is evidence. At Strikes Property Services we very much base our actions, handling and conclusions on evidence provided. It is far too easy in this tech world for people to sit behind a computer stating they have no money, business is poor, etc etc. However, someone generally struggling and being truthfully would welcome to show you their books, takings, accounts and statements, providing all the evidence required for the landlord, agent or enforcement company to make informed decisions.
Engaging with the tenant at an early stage can often lead to a practical resolution, such as a repayment plan or revised payment arrangements. Open communication may preserve the landlord-tenant relationship and avoid costly legal proceedings.
Initial Steps for Landlords
The first step is to review the lease agreement carefully. When clients instruct us, one of the first things we review is the commercial lease, along with the statement of arrears. The lease will typically contain provisions relating to:
– Rent payment obligations
– Interest on late payments
– Default clauses
– Rights of re-entry or forfeiture
– Recovery of legal costs
Commercial Rent Arrears Recovery (CRAR)
One of the most powerful remedies available to commercial landlords in England and Wales is Commercial Rent Arrears Recovery (CRAR).
CRAR allows enforcement agents to take control of a tenant’s goods and sell them to recover unpaid rent. In reality though, do you really want the goods, or would you rather the goods remain on site with a tenant paying. Most, if not all, would say the latter. Since the 2014 regulation changes from the Law of Distress to Taking Control of Goods, we have seen a huge decline in actual removals and the use of auction houses. The majority of our instructions end with either payment in full, or a payment plan the landlord and / or agent is satisfied with. Thus, keeping the tenant and business in situ, obtaining the monies owed whilst maintaining that landlord tenant relationship – surely that’s a win for everyone involved.
For CRAR to be utilised, there are a few key points.
– The premises must be wholly commercial.
– Only principal rent can generally be recovered through CRAR plus any associated VAT – A minimum level of arrears must exist, being equal to 7 days amount of rent (not 7 days in arrears)
– Enforcement agents must provide notice before attending the premises, known as the Notice of Enforcement
– The notice of enforcement is sent by the agent or the enforcement office, and must give 14 clear working days before an agent can attend.
CRAR can be highly effective where a tenant continues trading. If you are in doubt, speak to a member of our team.
Top CRAR FAQs
1. What is Commercial Rent Arrears Recovery (CRAR)?
CRAR is a statutory process that allows commercial landlords to recover unpaid commercial rent by instructing certificated enforcement agents to take control of and potentially sell a tenant’s goods, without first obtaining a court judgment order. CRAR (Commercial Rent Arrears Recovery) was introduced under the Tribunals, Courts and Enforcement Act 2007, Schedule 12 and came into force on 6 April 2014.
2. When can a landlord use CRAR?
A landlord can use CRAR when:
- There is a written commercial lease.
- The premises are purely commercial.
- The tenant is still in occupation.
- At least seven days’ net rent remains unpaid.
- A certificated enforcement agent is instructed
3. Can CRAR be used for mixed-use properties?
No. CRAR is only available where the premises are let wholly for commercial purposes. If the lease includes residential accommodation, CRAR cannot be used.
Please visit our Commercial Debt Recovery services, or our Possession Order services for further details.
4. What debts can be recovered through CRAR?
CRAR is limited to:
- Principal rent
- VAT on the rent
- Contractual interest on the rent
It cannot be used to recover service charges, insurance premiums, repairs, business rates, or other lease liabilities. If you have more than just commercial rent owing, then please visit our Debt Recovery blog, which we work alongside CRAR
5. How much rent arrears are needed for CRAR?
For CRAR, there must be an amount equal to, 7 days worth of rent. To Calculate the daily amount, simply divide the month or quarter rent, by the number of days within that period and times by 7. As long as the amount owing is greater than this figure, CRAR is exercisable.
6. Can a landlord carry out CRAR personally?
No. CRAR must be carried out by a certificated enforcement agent. Landlords cannot send a Notice of Enforcement nor can they seize goods themselves.
7. How long does the CRAR process take?
Upon instruction, and same day we would issue your tenant with a Notice of Enforcement, giving the tenant 14 days to pay or come to a payment arrangement that the landlord I agreeable to. If neither of these happen the agent will visit the premises the following working day after the expiry of the 14 day Notice of Enforcement.
8. Do landlords need a court order for CRAR?
No, this is the beauty of CRAR (Commercial Rent Arrears Recovery), no court order is required, as long as the statutory requirements are met.
9. CRAR vs forfeiture: which is better?
This completely depends on a few factors, type of tenant, arrears history, credit rating of the tenant, type and location of the unit in question.
Our blog on Forfeiture may help you decide, but if you are still unsure, speak to us to gain a better understanding of the pros and cons of both CRAR and Forfeiture.
