Presently landlords of commercial premises can use the remedy of distress to recover arrears of rent from tenants. The remedy is powerful in that commercial landlords can instruct bailiffs to seize goods up to the value of the arrears without giving any notice of the visit to the landlord.
This is set to change with the introduction of Commercial Rent Arrears Recovery which is set to come into force on 6 April 2014 and replace distress. The legislation was enacted back in 2007 under the Tribunals Courts and Enforcement Act 2007, but has been on hold until now.
The impact of the legislation is wide ranging. Landlords must now give 7 days notice to the tenant before exercising Commercial Rent Arrears Recovery. The notice should be in the prescribed form and the calculated excluding Sundays, Christmas Day and Bank Holidays. This will obviously give tenants the opportunity to put any assets of value out of the landlord’s reach. In addition tenants can challenge the notice and a Court may order that recovery cannot be undertaken without the Court’s permission. There is an opportunity for landlords to go to Court to shorten the notice if a landlord can satisfy the Court that the tenant is likely to remove the assets.
Other areas of potential concern for landlords are;
- Commercial Rent Arrears Recovery is not available to landlords who let premises which include residential premises as part of the same lease. This could include leases of public houses or shops with flats above and such like. Landlords should ensure that the residential part has a separate lease wherever possible.
- The premises must be let under a written lease, so landlords with informal arrangements cannot use Commercial Rent Arrears Recovery.
- The arrears must be 7 days of rent at least.
Landlords with sub-tenancies can also give 14 days notice to the sub-tenant to instead pay rent to the landlord.
The change in legislation makes recovering arrears more difficult for landlord and it is likely that tenants will capitalise on problems with notices to their advantage. Landlords should take advice before embarking upon Commercial Rent Arrears Recovery to ensure they do not fall foul of the legislation.
By Louise Hebborn, Partner in the commercial litigation department
Stephensons specialises in commercial rent arrears recovery.