Keep it legal: Commercial rent arrears

New legislation on recovering unpaid commercial rent will have an impact on third sector organisations that are landlords or tenants. Under common law, a landlord whose tenant is in arrears is allowed to enter the property and take possession of the tenant's goods, which can then be auctioned off and the outstanding rent recovered from the proceeds. Due to the drastic nature of this right, and the lack of oversight by any independent body, concerns have been raised that it interferes with the human rights of tenants.

The Tribunals, Courts and Enforcement Act 2007 will, once in force, replace the current law with a similar procedure called Commercial Rent Arrears Recovery. This can be used only once the total rent arrears are above a statutory threshold and once a notice period has expired - both still unspecified. The landlord will no longer be able to seize goods personally, but can instruct an enforcement agent authorised by the court (a bailiff) to enter the premises and seize goods up to the value of the rent arrears. Any of the tenant's goods that are outside the building may also be seized. A further notice must then be served on the tenant, informing them of the details of the sale of the seized goods.

CRAR may be used only for purely commercial lettings and only for the recovery of rent, not any other sums due under the lease, such as service charges - even if the lease says otherwise. However, opting out of CRAR or limiting its use is permitted, which would restrict landlords to recovering rent arrears through court action.

Practically, charities that are landlords do not need to take any steps in relation to existing leases other than to make sure they do not attempt to enter premises once CRAR is brought into force. Doing so would be likely to be deemed trespass, if not theft. Landlords should seek legal advice regarding the serving of notices on their tenants in order to ensure that the requirements of the CRAR procedure are fulfilled.

Jane Kenyon is an associate in the private client practice group at BP Collins.

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