In an effort to lessen financial pressure on businesses, on 10 March 2021 the government extended the restriction on the use of the Commercial Rent Arrears Recovery (CRAR) process by landlords.
This measure will increase the total number of days' outstanding rent required for CRAR to be used to:
- 457 days (between 25 March 2021 and 23 June 2021), and
- 554 days (between the 24 June 2021 and 30 June 2021).
However, with this being a popular option for landlords looking to recover unpaid rent, what other debt recovery routes are available in the meantime?
What is CRAR?
Commercial Rent Arrears Recovery (CRAR) is a procedure that allows commercial landlords to recover rent by taking possession of a tenant’s goods with a view to selling them. No court proceedings are necessary, with certificated enforcement agents able to enter the property and seize the goods for sale at auction after seven clear days’ notice to the tenant has been given.
Negotiating commercial lease terms/concessions
Although CRAR is an efficient way to regain funds, renegotiating contracts can be the best alternative for the longer term.
During this process, compromise on both sides is key. For example, this could mean lowering the amount of monthly rent in return for an extension on the lease (or another benefit to the landlord).
Issuing court proceedings
The second alternative involves issuing court proceedings to recover the debt. Much like CRAR, this option means that, once a judgment is secured against the tenant, enforcement officers are able to enter the tenant’s property to remove goods.
Unlike CRAR, this method also gives landlords the opportunity to issue a claim for other sundries, meaning more money can be recovered. However, this does come at a cost, from court fees to further expenses that may come later down the line.
When choosing this path, landlords must:
- Issue a Letter Before Action (LBA), which informs the tenants that court proceedings are being considered. This acts as a formal demand for money owed and gives the tenant chance to pay or contest.
- Be clear about what they are claiming for and why, whether it be purely rent or other items as well.
Can a landlord forfeit a commercial lease?
As a last resort, landlords can forfeit (i.e. terminate) the lease. However, bear in mind that finding another tenant can be hard in the current climate.
Light at the end of the tunnel
With the rollout of the COVID-19 vaccines, there is the hope of financial recovery in 2021. However, if landlords are struggling with cash flow due to unpaid rent, court proceedings are always an option.
Nevertheless, negotiation often should be the first port of call, with the outcome potentially being better for both parties. These are complicated times for everyone and demonstrating flexibility landlords and tenants can keep relationships strong.
From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.
Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.