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CRAR Bulletin for Insolvency Practitioners - Landlords in Distress

On 6 April 2014, the remedy of distress was abolished under English law and replaced with "Commercial Rent Arrears Recovery" procedure, commonly abbreviated to "CRAR".

CRAR was set up under the Tribunal Courts and Enforcement Act 2007 and the Taking Control of Goods Regulations 2013, which set out the procedures that must be followed by Landlords looking to recoup unpaid rent. It is applicable only to commercial leases, and failure to follow the correct procedure puts the Landlord at a risk of the Tenant bringing a claim for damages.

The key points are as follows:

1. At least 7 days rent must be due but sums reserved as rent under the lease, such as service charges and insurance premiums, are excluded.

2. The Landlord must instruct an Enforcement Agent to serve notice on the Tenant of the intention to seize goods to the value of the unpaid rent.

3. Once the notice has been served, the Enforcement Agent must wait 7 clear days before entering the Premises.

4. After the 7 days have elapsed, the Enforcement Agent may enter the Premises between 6am and 9pm and remove goods up to the value of the unpaid rent, provided they are not classified as excluded goods under the Regulations. These include "tools of the trade" worth £1,300.00 in total.

5. The Enforcement Agent can sign a Controlled Goods Agreement with the Tenant, preventing the Tenant from removing these goods from the Premises until the rent arrears have been paid.

6. If goods are removed, the Enforcement Agent must give the Tenant a written valuation within 7 days and the goods cannot be sold for a further 7 days.

7. If no goods of value are found on the first occasion, and the Enforcement Agent believes that goods of value have since been delivered to the Premises, 2 days notice of re-entry must be given to the Tenant. The Landlord can ask the court to shorten the notice period.

Not surprisingly, CRAR has been met with concern by Landlords as the requirement for notice has taken away the element of surprise which made distraint such an effective remedy. It remains to be seen how the Courts treat applications by Landlords to shorten the notice period that must be given to Tenants. CRAR has been introduced at the same time as the tightening of regulations governing Bailiffs who collect debts from private individuals.