So, this is the final instalment in my series of dealing with tenants in rent arrears. Over the last few weeks, Ive looked at Forfeiture, Pursuing the Guarantor and Statutory Demands. Now we come to Distress or sending in the bailiffs.
As Ive said before, its important to take professional advice when working out which option will be best route as it really does depend on your specific circumstances.
Commonly known as sending in the bailiffs, distress is a historic remedy that enables a landlord to seize goods belonging to a tenant who is in arrears. There are a number of criteria that must be satisfied before a landlord can distrain on a tenant:
- The tenants interest in the premises must be a lease and not a licence.
- Only rent or sums described as rent in the lease that are in arrears can be sought for reimbursement via distress.
- Only goods at the demised premises can be seized.
Distress can only be used when the landlord accepts that the tenants lease is still in place and therefore cannot be used in conjunction with forfeiture.
The process of distress has always been viewed as a cheap, fast and very effective remedy, especially if the tenant runs a retail business and has a lot of stock at the premises. Bailiffs could be appointed by completing a warrant to distrain, followed by the bailiff gaining entry and making an inventory of goods that could be sold (as long as the goods are not tools or machinery that if sold would hinder the tenants ability to continue with their business). By visiting, the bailiff will hopefully prompt the tenant to deal with the arrears. Should the tenant not clear his debts, the bailiff will return for a second visit to remove the goods marked on the inventory. The goods will then be sold at public auction.
As of the beginning of August 2013, the process of distress as landlords know it has been given its sell by date. From April 2014 the delayed Commercials Rent Arrears Recovery (CRAR) scheme will take effect. CRARs is one of many reforms under the Tribunals, Courts and Enforcement Act 2007 that received Royal Assent in July 2007, however until August of this year no date for implementation was published.
Although distress had its many critics, it was recognised as an effective way for landlords to recover rental arrears. As a result the general consensus was that distress could not be abolished without a replacement process, i.e. CRARs. Whilst there is great need for a rent arrears recovery process, the legislation makers have made sweeping changes to the process when initiating CRARs.
CRARs will only be available to unpaid rent, to include VAT and interest but not insurance or service charge. The landlord will not be entitled to use CRARs unless the arrears total 7 or more days rent, as opposed to the current 1 day minimum threshold. Furthermore, the tenant must be given 7 days notice before bailiffs take control of goods, which must not be sold for 7 days after the removal.
The new process also places stricter procedures on the bailiffs; they can only visit the premises between the hours of 6am to 9pm and they have to prove to the courts that the debtors goods are on the premises before gaining entry.
The idea of CRARs is to encourage more negotiations between a landlord and tenant and to try and avoid the tenant going bust whilst the landlord is left with a vacant unit. However it is widely perceived that the process will only be worth pursuing if the tenants goods are valuable or the rent in arrears is substantial.