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A commercial lease is a legally binding agreement that allows a tenant sole occupancy of a commercial property. In return, they have to pay rent. When a landlord and tenant are part of a commercial lease, the tenant may experience financial difficulty and fall into rent arrears. When tenants fall into rent arrears, their landlord can use the commercial rent arrears recovery (CRAR) process. This article will explain the pros and cons of the CRAR process.
Commercial Rent Arrears Recovery
The commercial rent arrears recovery process (CRAR) is a legal method for landlords to recover rent arrears from their tenants. It replaced the previous legal method, which was to use distress law.
The CRAR process allows a landlord to recover rent arrears that are at least seven days late. The process will enable them to use an enforcement agent to seize goods from their tenant’s premises.
Advantages for Landlords
There are various advantages to the CRAR process for commercial landlords. One advantage is that it is a fast process for a landlord to recover unpaid rent. Also, they do not need to obtain a court order to use the process. Accordingly, they can avoid delays and costs associated with court procedures.
A landlord can only use CRAR where the rent is at least seven days late. This could be advantageous for a landlord as it is relatively soon after the rent is due. It means a landlord does not have to wait for an extended period of missing rent before taking action. CRAR assists landlords to recover missing rent and not fall into financial difficulty themselves.
Additionally, when a landlord uses CRAR, an enforcement agent will enter the commercial premises, whether open or locked. The enforcement agent will then seize goods up to the value of missing rent. This is an advantageous aspect of the process, as it guarantees the recovery of missing payments.
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Advantages for Tenants
As a landlord can only use CRAR when rent is at least seven days late, it gives a tenant some time to raise the funds to pay their rent before the landlord takes action. However, this could be a disadvantage when the tenant needs more time to raise funds for rent.
A tenant can also apply to a court to delay or set aside an initial enforcement notice. The CRAR process also has an anti-avoidance provision. This means the landlord cannot change the process in any way, providing tenants some legal protection.
A commercial tenant can use a controlled goods agreement to clear the rent arrears gradually and hold onto their goods. Such an option can assist a tenant in keeping their goods, as well as coming to a resolution with their landlord. An agreement also allows tenants to stay on the commercial premises and continue operating their business. However, if they fail to keep to the agreement, they risk a landlord initiating the CRAR process and losing their goods.
This cheat sheet outlines what you should be aware of in your lease agreement.
Disadvantages of the CRAR Process
The CRAR process has some disadvantages for both tenants and landlords. An obvious disadvantage for commercial tenants is that they lose their goods to pay for the money they owe their landlord in rent arrears.
One disadvantage for landlords when initiating the CRAR process is that they cannot use it to collect anything else the tenant may owe them. For example, if the tenant is in arrears with their service charge or insurance rent payments, the landlord cannot refer these to CRAR. Another critical disadvantage is that a landlord loses the right to forfeiture of the commercial lease when choosing the CRAR process.
Another disadvantage of the CRAR process is that a landlord needs to find a certified enforcement agent to secure their tenant’s goods. It is unlawful for the landlord themself to enter the property and seize their tenant’s goods. Accordingly, landlords will spend time finding the most suitable firm to carry out CRAR.
A further disadvantage of CRAR is that commercial landlords can only use this when their property has a written lease. Therefore, if they allow a business owner to use their commercial property through a licence, they cannot rely on the CRAR process.
Key Takeaways
If tenants fall into rent arrears in a commercial lease, their landlord can use the commercial rent arrears recovery process (CRAR). CRAR allows a landlord to engage an enforcement officer to seize their tenant’s goods and recover unpaid rent. There are advantages and disadvantages of this process for both landlords and tenants.
If you need help understanding the commercial rent arrears recovery process, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
The commercial rent arrears process is a method for landlords to recover rent arrears from their tenants.
An advantage of the commercial rent arrears process is that it is fast and relatively cheap for a commercial landlord to undergo.
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