What is Commercial Rent Arrears Recovery? (CRAR)

Landlords and Commercial Rent Arrears Recovery

While much has been made in recent years about retailers engaging Insolvency Practioners and taking out CVA’s to escape lease obligations under the guise of restructuring business debt, to the detriment of commercial landlords, the landlords of commercial property who are owed rent prior to their tenant setting up a CVA, have powers to recover commercial rent owed, in particular through use of ‘CRAR’ – Commercial Rent Arrears Recovery.

What is Commercial Rent Arrears Recovery?

CRAR is relatively new law which was brought in during 2014 to replace and reform, the previous rules of ‘Distress’ (which were almost 8 centuries old) and gives landlords more power than the pre-exisiting legislation when it comes to recovering rent arrears owed by their commercial tenants. This power is balanced by giving more protection to tenants too, thanks to modernisation of the recovery procedure which must be follwed.

At its core, CRAR allows commercial landlords in the event of rent being owed, to seize the goods from their commercial tenants to the value of the rent arrears, but there are conditions which must be met before Commercial Rent Arrears Recovery can be invoked.

• Those under threat from Commercial Rent Arrears Recovery have the right of appeal and once they have appealed, no collection activity can take place without a court order.
• Tenants must be given at least 7 days notice prior to collectors attending to seize goods. A court order can reduce this time, but in practice, a commercial debtor will have time to prepare for the visit to stop the action by either appealing, or starting insolvency action.
• Only certified enforcement agencies are permitted to seize goods on behalf of the landlord.
• If goods are seized, they must be held for at least 7 days before they can be sold.
• The amount collected in goods can only be equivalent to rent owed, VAT and any interest on the debt. The value of service charges, or collection fees etc cannot be collected in this way.
• Only property which is fully in commercial use can be subject to CRAR. A property which is wholly, or even partially in residential use cannot be subject to this type of action. Further to this, there is a requirement that the lease agreement states that the property is in commercial use only, otherwise CRAR cannot be used.

Using a CVA to counter Commercial Rent Arrears Recovery

As mentioned earlier, an appeal can temporarily halt a CRAR, but if the appeal isn’t upheld, or if the appeal option is undesirable, the formal insolvency solution of a Company Voluntary Arrangement can be sought. A CVA can only be overseen by a Licensed insolvency Practitioner, but for insolvent businesses, it offers a breathing space to decide how to deal with debt and an affordable way forward which is binding on the business as well as it’s creditors.

Once the CVA process is started, no recovery action by any creditors can take place. The Insolvency Practitioner will look at the debts of the business and put forward a proposal on a way forward to all the business’s creditors. if 75% (by debt value) of the creditors agree to the proposal, then the remaining creditors are bound by it too, even if they didn’t agree and must abide by the terms of the CVA.

If your business is under threat from Commercial Rent Arrears Recovery, then contact us to discuss your situation. We offer a free consultation and can use this to offer guidance on a way forward which will halt recovery action and help restructure your business debt to allow you to continue trading.