A landlord may be faced, in the course of managing their property, with unpaid rent by a tenant. In commercial tenancy arrangements, a specific recovery regime exists that enables the recovery of arrears through enforcement action. This is the commercial rent arrears recovery process (known as CRAR).
If you are reading this guide because you need support with the commercial rent arrears recovery process our commercial property dispute solicitors can help. From the initial demand through to taking control of the premises, we guide you every step of the way to recover your arrears effectively.
Here we'll be discussing:
- When can you use the commercial rent arrears recovery process?
- What costs can you recover through the commercial rent arrears recovery process?
- How much rent must be overdue before you can use the commercial rent arrears recovery process?
- What are the advantages and disadvantages of the commercial rent arrears recovery process?
- What notice must you give tenants before you use the commercial rent arrears recovery process?
- What is the commercial rent arrears recovery process?
- What goods can be taken following the commercial rent arrear recovery procedure?
- What risks do landlords face when they use the commercial rent arrears recovery process?
- How long does it usually take to recover rent through the commercial rent arrears recovery process?
- Can you use the commercial rent arrear recovery process if the tenant is in administration or being liquidated?
- What are the alternatives to the commercial rent arrears recovery process?
- Summary
When can you use the commercial rent arrears recovery process?
You can use the Commercial Rent Arrears Recovery (CRAR) process if you’re a commercial landlord with a written lease, the tenant is still in occupation, and there is a specific amount of unpaid rent. It can also apply to tenancies at will. CRAR is not available for mixed-use properties, licences to occupy or tenancies in sufferance (where the lease has ended, the tenant remains, and the landlord hasn’t agreed to let them stay). It’s important to note that CRAR can only be used to recover the principal rent, any interest on it, and VAT. It can’t be used for other sums like service charges, insurance premiums or maintenance costs, even if your lease labels them as ‘rent’.
What costs can you recover through the commercial rent arrears recovery process?
Landlords need to bear the initial upfront costs of paying enforcement agents, but these can typically be recovered (from the proceeds of sale) if the recovery process is successful. If the tenant pays the rent after receiving the enforcement notice or the process is unsuccessful, you will bear the costs.
How much rent must be overdue before you can use the commercial rent arrears recovery process?
A minimum of seven (7) days’ rent must be outstanding to start the CRAR process. This must be a fixed, ascertainable amount, so it can’t be used with turnover rent leases. The tenant must still be in arrears at the point enforcement action is taken (ie goods are seized).
What are the advantages and disadvantages of the commercial rent arrears recovery process?
Advantages of CRAR
Quick and effective: Landlords can use CRAR without first obtaining a court order, making it faster and less costly than litigation. The threat or initiation of CRAR may encourage tenants to settle arrears quickly to avoid losing goods.
Legal and transparent: CRAR is a statutory and regulated process, which means that provided you meet the requirements and follow the prescribed procedures, there is little room for disputes. Enforcement must also be carried out by Certificated Enforcement Agents (formerly known as bailiffs), ensuring a professional and regulated approach.
Maintain business relationship: There is no need to terminate the lease. CRAR allows you to recover rent while maintaining the lease, which can be beneficial if re-letting is difficult.
Costs recovery: Your enforcement fees are typically recoverable.
Disadvantages of CRAR
Limited scope: CRAR applies strictly to principal rent, interest, and VAT. It cannot be used to recover service charges, insurance, or other sums.
Waiving the right to forfeit: By using CRAR, landlords waive their right to forfeit the lease for the same arrears. This means you won’t have the option (reserved in most commercial leases) to end the lease and take back your property based on that breach. You must wait until the next quarter of missed rent (ie the next breach) and in the meantime debts may continue to mount.
Tenant frustrating the process: Tenants may remove or hide assets before enforcement, especially as they are on notice. Even if goods are recovered, they may not be of enough value or generate sufficient returns on sale to allow full recovery.
No guarantee: While costs may be added to the tenant’s debt, recovery is not guaranteed. If the process is unsuccessful, the tenant settles the debt, or sales do not generate sufficient funds, you may be out of pocket.
What notice must you give tenants before you use the commercial rent arrears recovery process?
You need to provide at least 7 clear days’ notice of enforcement to your tenant. You can’t issue or enforce the notice yourself, it has to be done by a Certified Enforcement Agent. The notice can be sent by email, posted, or by personal service. The notice itself must contain specific information, including property information, lease details, the amount of rent owed, the deadline for non-payment, and potential consequences.
What is the commercial rent arrears recovery process?
The commercial rent arrears recovery process has specific conditions that must be met before it can be used. Here is a brief overview of how it works and when it applies:
- Confirm eligibility
Ensure the property is let under a written commercial lease and the arrears relate to principal rent, interest, and VAT only. The tenant must owe at least 7 days’ worth of unpaid rent before the process can begin. - Instruct a certificated enforcement agent
Landlords must formally authorise and instruct a Certificated Enforcement Agent in writing to act on their behalf (not act themselves). - Serve a notice of enforcement
The Enforcement Agent serves a Notice of Enforcement on the tenant, giving them at least 7 clear days’ notice before taking further action. - Wait for the required notice period
The tenant has time to pay the arrears voluntarily. If payment is not made within the 7-day notice period, enforcement can proceed. There’s a 12 month limit from the date of the enforcement notice in which you must exercise recovery (unless an extension has been granted by the court). - Take control of goods
The enforcement agent visits the premises to take control of the tenant’s goods. This may involve securing the goods on-site or removing them for sale. Entry must usually be made during normal business hours, and through open or unlocked doors (a warrant is needed from the court to use reasonable force).
The enforcement agent may enter into a Controlled Goods Agreement (CGA) with the tenant after they have taken control of the goods. It allows the tenant to repay the rent (eg through an instalment plan) and keep the goods on the premises. If the tenant defaults on the arranged payment plan, the enforcement agent retains the right to seize goods.
The enforcement agent should provide a signed inventory of controlled goods to the tenant as soon as possible after the visit. - Selling goods
If a CGA has not been agreed or the debt remains unsettled, the goods can be sold at public auction. The sale can’t take place until at least 7 clear days from their removal (unless perishable goods) and the tenant must also be given notice of the time, date, and place of sale. The proceeds are used to pay the arrears and cover enforcement costs. The enforcement agent should provide the tenant with information about the goods sold, amounts received, and charges applied soon after. - End of process
Once the arrears are paid (through voluntary payment or sale of goods), the process concludes. The landlord may not then take further action for the same arrears using forfeiture.
What goods can be taken following the commercial rent arrear recovery procedure?
Only items that belong to the tenant and are physically located within the leased commercial property may be seized. This can include furniture, machinery, and other equipment, subject to the following (which cannot be seized):
- Items belonging to third parties, subtenants or employees
- Goods in use when the enforcement agent enters the property
- The tenant’s ‘tools of trade’ essential to their business up to a total value of £1,350 (exempt goods)
- Items required for the tenant’s basic domestic needs
- Certain vehicles including those with visible disabled badges or used in healthcare emergencies
What risks do landlords face when they use the commercial rent arrears recovery process?
While CRAR can be an effective remedy for recovering unpaid rent, it must be used carefully and wisely. Keep in mind the following when invoking CRAR:
Waiving right to forfeit
Using CRAR results in landlords losing the right to take back possession of the property, which may be a more desirable or strategic option in certain situations. It is best to consult with expert commercial property dispute solicitors to understand whether this will matter for you.
Unsuccessful or partial recovery
CRAR does not guarantee full recovery of the rent arrears. The tenant may not have enough valuable assets to cover the debt or may remove or conceal them after receiving notice. You may find yourself bearing some or all of the costs, and left to pursue other remedies (bearing in mind you would have lost the right to forfeit for this breach).
Non-Compliance: Breaching the CRAR provisions can render the enforcement invalid. Not only does this expose you legally, such as paying the tenant damages for its loss, but also runs the risk of reputational damage.
How long does it usually take to recover rent through the commercial rent arrears recovery process?
If the tenant pays up quickly after the notice, it can be resolved in as little as 7–10 days. Otherwise, it typically takes around 12 days for agents to attend the property if a notice of enforcement is delivered by post, or 9 days if it’s served personally. Factors that can influence the timeline include the tenant’s cooperation (or resistance), as well as any delays in accessing the premises, valuing, or selling the goods. If there are complications, it can take 4-6 weeks or longer.
Can you use the commercial rent arrear recovery process if the tenant is in administration or being liquidated?
In the case of administration, a statutory moratorium takes effect, stopping landlords from taking CRAR action without the consent of the administrator or permission from the court.
Many actions can also be stayed by the court during a voluntary wind-up of a tenant company. In the case of a compulsory winding up pending, CRAR action is void. Permission is generally required for any type of enforcement action in these circumstances – so unless the seized goods have already been sold before the winding up process begins, you are limited. It’s also worth bearing in mind that if your tenant is being liquidated, this is usually considered a forfeiture event under most commercial leases. The liquidator may also elect to disclaim the lease and hand the property back to the landlord.
What are the alternatives to the commercial rent arrears recovery process?
Depending on your circumstances, it may be worth considering alternatives. Below we outline some options, together with their advantages and drawbacks:
Statutory demand
A statutory demand is a formal written demand for payment of a debt exceeding £750 for companies and £5,000 for individuals. It is served under the Insolvency Act 1986. If the tenant fails to pay within 21 days, the landlord can begin winding up proceedings for companies or bankruptcy proceedings for individuals.
This option puts significant pressure on the tenant to pay quickly. It is relatively low in cost and a straightforward process that does not require immediate court involvement. It is not suitable where the debt is genuinely disputed. It may also only lead to insolvency action, which might not result in actual payment.
Forfeiture
Forfeiture is the landlord’s right to terminate the lease when a tenant breaches its terms, such as by failing to pay rent. It can be exercised by peaceable re-entry to the premises or by starting court proceedings.
The main advantage is that the landlord can regain possession and potentially re-let the property to a better tenant. It can also be used where there are other breaches of the lease. The risks are that the tenant might apply for relief from forfeiture, and a wrongful forfeiture can lead to legal costs, compensation claims and delays. It might also be commercially unattractive if the tenant is otherwise a viable business. For more information on this topic read our forfeiture of a commercial lease guide.
Drawing down on a rent deposit
Many leases include a rent deposit deed that allows the landlord to draw down unpaid rent from the deposit held. This typically involves notifying the tenant, who is expected to top the deposit back up.
It is a quick and simple option that does not require court involvement and provides immediate funds to cover arrears. It is also governed by clear contractual terms. The drawback is that it reduces the deposit, limiting future security if the tenant refuses or delays topping it up. The deposit may also be too small to cover the full arrears.
Recovering unpaid rent from a guarantor
If the lease is guaranteed by a third party or a former tenant, the landlord can pursue the guarantor directly for unpaid rent.
This is a useful option if the tenant is insolvent or unresponsive. The lease and guarantee terms usually allow full recovery of unpaid amounts. The downside is that this often involves court proceedings, which can be time-consuming and expensive.
Issuing Court Proceedings
A landlord can issue court proceedings to recover unpaid sums. This is generally treated as a last resort, especially where other remedies such as CRAR or forfeiture are not suitable or have failed.
The benefit of court action is that it results in a binding judgment that can then be enforced. It also preserves the lease, keeping the landlord’s control over the premises. The disadvantages are the legal costs, the time involved and the risk of the tenant defending or counterclaiming, which can complicate the case. Even with a judgment, enforcing it can be difficult if the tenant has limited assets.
Summary
CRAR is a powerful tool for landlords, but it comes with strict requirements and legal consequences. It is not suitable in every situation. If you are unsure whether CRAR is appropriate or how it may affect your other legal rights, especially forfeiture, it is best to seek legal advice. Our highly skilled commercial property dispute solicitors will discuss all your options and help you decide on the best way forward.
