Landlords of commercial property are being urged to review their leases ahead of new legislation curbing bailiffs’ powers, due to come into effect on 6 April.
CRAR (Commercial Rent Arrears Recovery) replaces the ancient common law of distress which allowed bailiffs to seize and sell goods to recover rent arrears without warning.
Under the new law, national firm of chartered surveyors Eddisons says that landlords will only be able to recover unpaid rent via enforcement agents (formerly bailiffs), but not service charge, insurance and other monies even if classed as ‘rent’ under the lease.
For this reason, David Rowling, head of property management at Eddisons, recommends that commercial landlords urgently review any service charge and insurance arrears that are already overdue or are likely to become overdue shortly after the next rental quarter date of 25 March. “Landlords may need to consider taking bailiff action prior to 6 April to protect their position,” he says.
The new law also bans enforcement agents from taking action on residential elements of a mixed-use lease, raising potential problems for shops, offices or pubs with domestic accommodation on the same lease.
In cases of mixed tenure, Rowling advises landlords in the process of granting new leases to divide, where possible, the commercial and residential elements into separate leases ahead of 6 April. This would allow them to use an enforcement agent on the commercial part in the future; otherwise their only options would be to seek repossession through the courts or pursue insolvency action.
CRAR gives tenants more notice that action will be taken. Landlords will have to give tenants seven days’ notice before enforcement agents can take control of goods – and they can only instruct enforcement agents when at least seven days’ rent is outstanding. Any item taken from the premises cannot be sold until seven days after removal.
Walking possession has been replaced by a Controlled Goods Agreement that has to be signed by the tenant before any item can be removed. And the hours within which enforcement can be undertaken have been clarified as ‘between 6am and 9pm’, replacing the far more ambiguous ‘dawn to dusk’.
“Part of the effectiveness of using a bailiff in the past has been its immediacy and shock value,” says Rowling. “Tenants don’t relish being blacklisted and in a case where the landlord owns many adjoining properties, like a shopping centre, it can send out a clear message to all the other leaseholders. The new system, however, does allow for a greater period of negotiation between landlord and tenant, which may ultimately avoid the premises being left empty.”
By Carl Gledhill
Richard joined Eddisons in 2003 and has been the Managing Partner since 2012, a role that sees him lead the strategic direction and development of the business under the ownership of Begbies Traynor Group plc. Richard has been instrumental in the growth of the business which has seen turnover more than double since 2008.
In addition to his role as Managing Partner, Richard continues to play a vital role with key clients, particularly in the banking sector, where he is a trusted adviser to major high street clearing banks. Over the last eight years, Richard has been appointed LPA Receiver on many high profile properties and assists in the recovery of distressed loan portfolios.
Prior to joining Eddisons, Richard worked in the real estate division of a 'Big Four' firm where his notable assignments included the privatisation of Saudi Telecom for flotation on the New York Stock Exchange.