Sending the bailiffs in (or "distraining" as it is officially known) is often an effective way of recovering rent arrears. It has been used for centuries. Landlords will therefore be disappointed to learn that things are changing from 6 April next year. It will still be possible to seize the tenant's goods but the procedure will become more tightly regulated and, consequently, less effective.
In truth, this has been threatened for a while. In fact, legislation was introduced in 2007 but not immediately implemented so as to allow for consultation within the industry. Many thought that CRAR (or "Commercial Rent Arrears Recovery"), as the new procedure is to be known, would be jettisoned with the change of government in 2010 but this has not happened. The recession, which has hit the retail sector particularly hard, may have persuaded the government that tenants needed greater protection. Stories of heavy-handed bailiffs sneaking in the back door and intimidating staff also cannot have helped.
What is changing?
The first major change is that it will only be possible to use CRAR for arrears of principal rent (and VAT), and then only when the tenant is at least seven days in arrears. It will no longer be possible to use bailiffs to recover balancing service charge arrears or unpaid insurance premiums.
CRAR will not be available for mixed commercial and residential premises that are occupied under a single lease, e.g. a "shop and uppers". It has for some time been advisable for landlords to separate out the residential element, since a court case in 2006 decided that a landlord may not forfeit a lease by peaceable re-entry where the commercial and residential parts are held under one lease. CRAR may accelerate the move towards separate residential and commercial leases.
The most controversial change by far is the introduction of a notice period. As things currently stand, a landlord may send in the bailiffs without giving the tenant any prior warning. This element of surprise is one of the most effective aspects of the current law. The tenant has no time to conceal its goods or move them offsite. Under the new law, however, the landlord will need to give the tenant at least seven days' notice of its intention to seize the goods. In theory, it will be possible for the landlord to apply to court to reduce the notice period. However, the landlord will have to show good cause for doing so and the court costs will be a deterrent, not to mention the delay in obtaining a court hearing. A further disadvantage of the new approach is that the notice to the tenant will need to be served by the bailiff (or "enforcement agent", as he will now be called). Many landlords prefer to use their solicitors to serve notices to ensure that it is done properly. This will not, seemingly, be possible with CRAR.
Not all bad
It's not all bad news for landlords. It is currently only possible to distrain during daylight hours, between sunrise and sunset, and, arguably, not at all on a Sunday. This is especially problematic during winter. CRAR will, however, be available between 6.00 a.m. and 9.00 p.m. seven days a week. If the premises are, in fact, open outside these hours, CRAR may be used then, too.
Furthermore, the tools of the tenant's trade, i.e. any goods that, if they were seized, would prevent the tenant from trading, are exempt only up to a value of £1,350. There is no such limit as the law currently stands.
In practice, bailiffs do not usually remove the tenant's goods on the first visit. Instead, they take "walking possession" of them, which means that the goods are seized but not actually physically removed, giving the tenant a final chance to clear the arrears before the bailiff returns. This practice will remain (albeit under a new name: a "controlled goods agreement"). Any member of staff over the age of 18 with "apparent authority" to do so will be able to enter into a controlled goods agreement. This may avoid the problem that we currently have where the tenant's staff say that they cannot act without the consent of head office.
Landlords will not be pleased about many of these changes, in particular the requirement that they will have to give the tenant advance notice. For tenants, on the other hand, the new procedures will be welcome. No longer will they be at risk from a bailiff turning up unannounced, disrupting the tenant's business and causing potential embarrassment.
You might like to refer to the following bullet points, which summarise the key changes:
- Any certain rent, e.g. principal rent, balancing service charge, insurance premiums
- No minimum arrears
- No notice required
- Daylight hours only (and not on a Sunday)
- Tenant's tools of the trade may not be seized
- Walking possession
- Principal rent only
- Minimum of seven days' arrears
- At least seven days' clear notice
- 6.00 a.m. – 9.00 p.m. seven days a week
- Tenant's tools of the trade up to value of £1,350 may not be seized
- Enforcement agent
- Controlled goods agreement