What is Commercial Rent Arrears Recovery (CRAR)?
The Commercial Rent Arrears Recovery (CRAR) measures can let landlords take control of a business’ goods if it is behind on rental payments.
In this guide, we’ll explain when commercial landlords can use CRAR and the potential implications for your business if it owes rent.
During COVID-19, many UK businesses struggled to pay their rent. The government brought in a moratorium on commercial landlords evicting businesses as a result.
Then a Commercial Rent Arrears (Coronavirus) Act 2022 allowed applications to its relevant arbitration process, but the deadline on 23 September of that year was not extended.
Now, with inflation still high, many commercial tenants continue to struggle paying the rent and therefore, they’re at risk of their landlord using CRAR to take action.
What is CRAR?
CRAR features in the Tribunals, Courts and Enforcement Act 2007 and came into force in 2014, replacing previous more complicated distress laws. It is only for commercial tenancies, not residential ones.
Part 3 of this Act relates to: Enforcement by taking control of goods and Chapter 2 – Rent Arrears Recovery includes a section dedicated to CRAR.
It stipulates that: “A landlord under a lease of commercial premises may use the procedure in Schedule 12 (taking control of goods) to recover from the tenant rent payable under the lease.”
Specifically, commercial landlords can use CRAR to recover unpaid rent and related interest or VAT, but not other payments such as insurance or a service charge. There must be at the very least seven days of rent due before landlords may use CRAR.
Commercial tenants can then receive a notice of enforcement with a seven-day warning. See our blog on receiving a warrant of control for further details about enforcement notices.
If the rent remains unpaid after these seven days, the landlord can then enforce the CRAR scheme.
Implications
As a commercial tenant, if your business receives a notice of enforcement, it cannot sell or take away any goods or assets.
Bailiffs have up to 12 months to seize or remove assets, with a view to selling them and reclaiming the value of unpaid rent. They must give you an inventory of anything seized.
However, if your business can agree to a repayment plan, bailiffs may accept a controlled goods agreement permitting you to continue using them.
Falling behind on this repayment plan would then lead to the bailiffs removing them.
CRAR alternatives
Alternatively, if the commercial lease terms permit it, landlords may have the right to use some of the upfront deposit to recover the unpaid rent.
And another option that landlords could choose to use is the forfeiture of commercial lease proceedings.
Importantly the Tribunals, Courts and Enforcement Act 2007 stipulates that the use of CRAR is only allowed when the lease did not end by forfeiture.
A forfeiture of lease tends to work in two ways:
- Peaceable re-entry: After any grace period ends, the landlord enters the commercial premises when the tenant is absent, perhaps with the assistance of bailiffs.
- Court action: This is the more likely option when there is some potential for dispute around the amount of unpaid rent owed, or if peaceable re-entry is not feasible.
In the event of the landlord re-entering the premises, commercial tenants may be able to apply to a court for relief from the forfeiture of lease action. The tenant business would need to repay the arrears promptly for the landlord to reinstate the lease.
These alternatives are also options if the landlord enforces CRAR but the debt ultimately still goes unpaid. For example, if the business does not have assets of a high enough value to cover the rent owed.
In this scenario, the landlord could withdraw their CRAR notice of enforcement and pursue a forfeiture of lease instead.
Options if you can’t pay commercial rent
If your business is behind on rental payments, but you’re confident of catching up soon, it’s worth seeking extra time to settle the arrears.
But if you’ve applied for more time to settle overdue commercial rent and are still unable to pay, to prevent enforcement action, there are some other options to reduce the pressure.
Keep in mind that there are three tests to find out when your company is insolvent, which would affect the ability to pay rent, or other bills and invoices, on time. These are:
- The cash flow test
- The balance sheet test
- The legal action test
If your business is insolvent – ideally, before it happens – seek advice immediately from an insolvency practitioner. A team of experts can try to help and potentially rescue the business.
Possible next steps include going into administration, a company voluntary arrangement (CVA) or a creditors voluntary liquidation (CVL).
So, what’s the difference between a CVL and a CVA? A CVL usually requires that the firm stops trading, while a CVA allows business to continue and directors to remain in charge.
Summary
Commercial landlords can choose to use CRAR for the purpose of recovering unpaid rent, VAT and related interest.
It’s not for other payments such as insurance or service charges. There must be seven days of rent due, at least, before landlords can use CRAR.
A subsequent enforcement notice has a seven-day warning. If the overdue rent is still unpaid then bailiffs have up to 12 months to seize or remove assets, with a view to selling them.
To avoid this, businesses should aim to negotiate a repayment plan. Insolvent businesses should seek help from an experienced and licensed insolvency practitioner.
For more information about CRAR, or if your business needs help due to its debts, please get in touch to find out how we can help you.
