On 6 April 2014, The Commercial Rent Arrears Recovery Regulations (“the Regulations”) will come into force and apply to all written leases of commercial premises in England and Wales, including those entered into before this date.
The Regulations abolish the previous right of distress and provide that landlords must follow a strict statutory procedure in order to seize goods in the event of non-payment of rent.
The Regulations cannot be contracted out of and any provisions contained within a lease relating to seizing goods contrary to those provided by the Regulations will be void and unenforceable.
How do the Regulations Work?
Where rent is unpaid for a period of at least seven days, a landlord can instruct an enforcement agent (being a person authorised by the court or an exempt individual such as a constable, a HMRC officer or certain officers of the court) to serve notice on a tenant stating that it will enter onto the premises to seize the tenant’s goods.
Seven clear days (excluding Sundays, Bank Holidays, Good Friday and Christmas Day) following service of this notice, the enforcement agent can enter the premises and seize the goods. If it is likely that the tenant will move its goods to other premises or otherwise dispose of its goods in order to avoid them being seized, the landlord can apply to the court for an order to shorten the notice period. There is currently no guidance on how such applications should be made.
The notice must be given by an enforcement agent and contain specified information including (but not limited to) details of the debt and how the tenant can settle the same.
Significantly, the Regulations provide that this right to recover goods is only in respect of pure rent. Service charge, insurance rent, rates or any other sums due under the lease are not recoverable whether or not they are reserved “as rent” in the lease.
Third-Party Goods
Unlike the right of distress, under the Regulations goods can only be seized if they are the goods of the tenant. If an enforcement agent seizes the goods of a third party, an application can be made to court to recover these goods.
What should landlords do differently?
Landlords could consider the following alternatives:
1 obtaining additional security in respect of a tenant’s obligations to pay the sums due under a lease, such as a rent deposit or a guarantee. This could avoid the need to enforce the lease via the Regulations and enable a landlord to recover all of the sums due under a lease, not just the pure rent; or
2 if the lease is subject to an underlease, a landlord could serve a rent diversion notice on the undertenant requiring the undertenant to pay the underlease rent directly to the landlord.
This bulletin should not be taken as definitive legal advice.
