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When a commercial landlord allows a business owner to have sole occupation of the commercial premises which they form a lease for. Both parties will sign a lease agreement which is legally binding. This will detail many rules about the lease including the tenant’s rent. Both parties must abide by their lease obligations, which include the rent. However, unfortunately, commercial tenants can find that they get behind with their rent and fall into rent arrears. A commercial landlord may take action, and one option is the commercial rent arrears recovery process (CRAR). This article will explain four critical points about the UK commercial rent arrears recovery (CRAR) process.
Commercial Rent Arrears Recovery (CRAR)
Commercial landlords may choose to rely on the CRAR process when their tenant is in rent arrears. It is a relatively new process, having taken effect in 2014. It allows a landlord to ask agents to enforce assets that their tenant owns in order to sell them and use the proceeds to repay the rent arrears.
There is a specific process and related rules that landlords must follow as part of the CRAR process. Below we explain four critical points about the commercial rent arrears process.
1. Application
It is essential to know when the CRAR process applies and when it does not. The commercial rent arrears recovery process applies when a commercial tenant is in arrears for their commercial premises where they have a lease. The lease must be in writing; otherwise, the process will not be valid. In addition, the method applies to tenancies at will. If you have a residency at sufferance or a licence to occupy, the commercial rent arrears process cannot take place.
2. Conditions
In addition to the commercial rent arrears process only applying in specific circumstances, you must know which conditions must be met in order to apply the process. For instance, a landlord cannot use the process if the tenancy is not in arrears at the point in which they carry out the enforcement. Also, they just know the exact arrears, which must be at least seven days’ worth of rent. The enforcement cannot take place if, at that point, their rent debt is clear.
3. Use of Proceeds
A further key point to note concerning the CRAR process is the use of the proceeds from the sale of the assets seized. There are rules associated with this that a commercial landlord must follow.
The proceeds must pay the rent arrears but can cover a lower amount if the landlord agrees to this. It must also pay the costs associated with carrying out the commercial rent arrears recovery process.
If there is any amount left lover, the landlord must pass this to the tenant as the debt is clear. The remaining money came from the tenant’s assets, so the landlord must return it to them.
4. Eviction
As there are various options for a commercial landlord where tenants do not pay their rent, it is crucial to understand the effect of using one over the other. If a landlord decides to forfeit the lease, they cannot carry out the commercial rent arrears process. Further, if the lease has already ended and was not through forfeiture, there are also restrictions on using the commercial rent arrears recovery process.
If a landlord takes control of the goods before the lease ends and remains the landlord, they can carry the process out afterwards, providing:
- it relates to rent owed before the lease came to an end;
- is no longer than six months after it ended;
- the rent from the tenant who is in arrears still possesses the promises; and
- If the tenant has a new lease with the landlord, it must be a commercial lease.
This cheat sheet outlines what you should be aware of in your lease agreement.
Key Takeaways
The CRAR process is a method for a commercial landlord to recover rent arrears by asking an enforcement agent to seize their tenant’s possessions. If you carry out the commercial rent arrears recovery process for a UK commercial lease, there are many points to understand, including following a specific process and working within relevant rules.
If you need help understanding the critical points of the CRAR process, contact our experienced leasing lawyers 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. Call us today on 0808 196 8584 or visit our membership page.
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Frequently Asked Questions
The commercial rent recovery arrears process (CRAR) is a process a commercial landlord uses to recover rent arrears providing specific conditions are present and the context is current.
A key point to note about commercial rent arrears recovery is that a landlord can only carry it out if they have at least seven days of rent arrears.
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