Find out how you can best protect your assets from bailiffs
Juggling bills can be a necessary headache for business owners and directors but your business rent is one financial commitment that should be prioritised.
Unlike other creditors, commercial landlords have a powerful, fast-track tool at their disposal to help them target you to recover arrears without having to go to court first.
It’s called Commercial Rent Arrears Recovery (CRAR) and gives them a significant advantage over other creditors.
If you’re struggling to keep up with your rent or want to safeguard your business against future risk, understanding CRAR is essential.
What is CRAR?
Commercial Rent Arrears Recovery (CRAR) is a statutory procedure that allows landlords of commercial premises to recover rent arrears by taking control of a tenant’s goods and selling them.
It replaced an old common-law remedy known as “distress for rent” in 2014 and brought with it a stricter, more regulated framework.
The most critical aspect of CRAR you need to understand is the speed it moves.
Landlords can use CRAR without obtaining a court order – this means that enforcement agents or bailiffs can arrive at your premises sooner than you think if you ignore or don’t engage with demands for payment.
It does have some limitations. These include:-
- The arrears meets a minimum standard – At least seven days worth of rent must be outstanding
- The lease is in writing – CRAR doesn’t apply to oral agreements or licenses to occupy
- The property is purely commercial – CRAR cannot be used for mixed-use properties (like a shop with a flat above it) unless they have separate leases
- The debt has to be principal rent only – Landlords cannot use CRAR to recover service charges, insurance premiums or maintenance costs, regardless if the lease defines these as “rent”.
- By exercising their right to CRAR, landlords may also waive their right to forfeit the lease for the same outstanding arrears.
Notice of enforcement – a warning shot
While CRAR sounds daunting, it’s not a raiding licence.
The law requires that you should receive a Notice of Enforcement at least seven days before any goods are liable for seizure.
This window of a week provides a vital period of protection. Once this notice is served, the goods on a premises are legally “bound” – meaning they cannot be sold or removed to avoid seizure. If assets are hidden or attempted to be hidden after receiving this notice then you could face legal consequences.
Your move – how to protect your business from CRAR
If you’ve received a Notice of Enforcement or you fear that you may receive one, then you still have several tools to use to defend your business:-
- Scrutinise the debt: The first thing to do is to check the figures carefully. Don’t take the landlord’s word for it. Enforcement agents can only act on “pure” rent arrears plus interest and VAT. If the landlord has bundled service charges or insurance into the total figure demanded via CRAR or miscalculated the rent amount then the process may be invalid.
- Negotiate a Controlled Goods Agreement (CGA) – if bailiffs arrive, it doesn’t mean that they have licence to strip your premises immediately. You can try to negotiate a CGA which allows you to keep the goods on the premises and continue trading if you stick to a strict repayment plan. If your cashflow issues are temporary then this is often the best route forward.
- Exemptions – There are some exceptions to what are eligible to be seized. These include tools of the trade or essential equipment used by sold traders for their business up to a value of £1,350. This also covers third-party goods (goods belonging to the tenant only). They cannot take leased equipment, items belonging to employees or stock held on a “retention of title” clause by suppliers.
The Insolvency Shield
If the business is fundamentally viable but is beset by debt or temporary cash-flow issues then certain insolvency procedures could provide respite and ultimately rescue.
A business entering administration for instance will benefit from an automatic moratorium which provides legal breathing space for a business by preventing landlords and any other creditor from enforcing legal action including CRAR.
If a company later closes through liquidation then any CRAR action also becomes void.
The government is considering proposals to increase the statutory seven-day notice period to a mandatory 14-day window which would allow businesses double the amount of time to settle arrears or seek advice and alternative arrangements before enforcement agents can attend.
CRAR is a useful tool for landlords to pressure directors into settling arrears more quickly but it is also a rigid process that has to be observed.
If you receive a Notice of Enforcement then the seven-day clock is ticking and you need to take immediate action.
By ensuring that they have adhered strictly to the letter of the law regarding notice period, debt types and exempt goods, then you can buy yourself valuable time to get some advice on how to handle CRAR and any other financial problems the business is facing.
You might have more options and room to manoeuvre than you originally thought – but you won’t know until you get in touch.