A Landlord’s Guide to CRAR — Commercial Rent Arrears Recovery
Commercial Rent Arrears Recovery is used when commercial rent is in arrears. Unfortunately, this is an issue that many landlords have to deal with at some point. In this guide, we outline exactly what the procedures and regulations involve.
What Is CRAR?
Commercial Rent Arrears Recovery is more widely known as CRAR. For those working in the commercial property industry, CRAR is a valuable law that enables landlords to collect rent owed to them by the tenant by taking goods from the property. CRAR only applies to landlords of commercial properties.
When Did CRAR Come into Effect?
The CRAR law came into effect in April 2014. The aim is to give landlords more power if they are owed money from tenants, and the procedures stipulate how landlords can collect their rent.
CRAR Replaced the Common Law ‘Distress’
After it came into effect, CRAR replaced the law “distress”, which was used by commercial landlords to seize goods without any prior warning to the tenants. The procedures for CRAR are more detailed and have stricter regulations. This effectively gives more power and protection to the tenants.
Can CRAR Be Used for Non-Commercial Property?
No, CRAR law is only applicable to commercial property. In buildings where there is both commercial and residential property, CRAR cannot be used.
Key Differences between CRAR and Distress
There are significant differences between CRAR and “Distress” that landlords must be aware of before taking any action. Rules around Distress date back almost 800 years and CRAR is intended to be more relevant for commercial landlords today. The regulations came into force in April 2014. Click below to find out more about the differences and rules associated with CRAR.
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Properties Must Be Wholly Commercial in Use Only
The whole property must be rented commercially. This means property that is part commercial and part residential can’t undergo CRAR procedures. This can be problematic for shops with a rented flat above the property, as CRAR is not relevant for residential property.
Can Only Be Used to Recover Principal Rent
The amount seized in goods must be equal to the amount owed for rent, VAT and interest. This means landlords cannot collect goods equivalent to the price of service charges, insurance or any other form of payment.
Higher Level of Prescriptive Control
Only certified enforcement agencies can collect goods from commercial property. Under Distress, this was done by bailiffs.
Differences in Lease Rules
The lease agreement between the landlord and tenant has to be written and must state that the property is commercial only. Only with a written agreement can CRAR take place.
Rights to Appeal
Tenants are entitled to appeal CRAR. They can appeal to the court that no further action of CRAR is taken without further order of the court.
What Can Be Seized?
Any goods owned by the tenant can be seized. If, however, when the enforcement agency enters the property, the tenant can pay the debt and the enforcement officer charges, no goods will be taken. No goods can be taken from any sub-tenants or third parties. Landlords can also take goods “on the highway” — for example, from the car park for the property.
Rules around Sub-Tenants
Sub-tenants can be asked to directly pay the landlord instead of the tenant. For this, they must be given 14 days notice.
Minimum Time Frames
The tenant must be given warning seven days before the enforcement agency will come and remove goods. This gives the tenant time to remove goods from the property or file for insolvency. If a landlord is concerned about this, they can ask the court to reduce the notice period.
After the goods are seized, landlords must give a further seven days notice to the tenants before selling the goods.
Who Might Use CRAR?
CRAR can be used by a variety of individuals working in the commercial property industry. The following groups may need to use CRAR.
- Commercial Landlords — Those renting their property to commercial businesses. If their tenants fail to pay, they will go through the CRAR process.
- Commercial Agents — As an intermediary, a commercial agent might need to use CRAR in the event of arrears.
- Property Lawyers — Property lawyers can act on behalf of clients to enforce CRAR when necessary.
What Can a Landlord Use CRAR For?
There are two main circumstances in which a commercial property landlord can use CRAR.
Firstly, CRAR can be used as a recovery method to seize goods and property from a commercial tenant who has not paid rent. They can legally sell the goods or property to cover the cost of outstanding rent. Secondly, a landlord can use CRAR on a sub-leasing tenant.
What You Need to Know if You Want to Use CRAR
If you want to use CRAR, here are the fundamental procedures that you need to follow. You must ensure that you are following all of the correct legal processes.
Active Lease Requirements
CRAR can only be implemented if there is a written leasing agreement between the landlord and the tenant. Ensure there is a contract and outline that CRAR will take place if the rent falls into arrears.
Period of Notice
Give the tenant or sub-tenant their seven or fourteen-day notice, after which you will be collecting goods. The seven-day notice does not include collecting on Sundays or bank holidays and should be done within the hours of trading.
Rules Regarding Leasing
It’s important to note the rules regarding leasing, outlined as follows:
– It must be a commercial lease, not residential
– May not include any portion of the property as residential
– The lease must include the provision of CRAR
Drafting around CRAR
When drafting a lease, landlords cannot modify the CRAR procedure or change any legalities of CRAR. However, both the landlord and tenant can discuss to prevent CRAR.
Navigating the New World of CRAR
Since its introduction in 2014, many landlords have been unhappy with CRAR and that it enables tenants to remove goods prior to collection. They feel this weakens their position and doesn’t allow them to act soon enough.
For tenants, however, it does offer an opportunity to gather the appropriate funds to pay their landlord. It also reduces the fear that a landlord could come and take more from the property than what they owe. The guidelines are very clear that landlords should only take what is owed for the rent.
For those dealing with commercial property, understanding CRAR is important. Should you need to execute your powers, you are able to consult a lawyer or proceed independently.
LogiPro is the property portfolio management software from Logican. With the ability to manage and keep track of rent in arrears, commercial landlords and agents alike will find the software useful when processing CRAR. Request a free demo of LogiPro today.