A change to the law has stopped commercial landlords using the 800-year-old ‘remedy of distress’ to collect rent arrears from business tenants.
It’s all part of the changes to bring clarity to the entry rights of bailiffs as the collections industry becomes regulated. But pub property agents, for starters, believe the changes are not well understood, according to a report in the publican’s online newspaper, the Morning Advertiser.
The new regime for Commercial Rent Arrears Recovery came into force in April. It means bailiffs can no longer be instructed without going to court to enter premises without warning to seize goods and sell them almost immediately after rent falls due on a quarter day.
Where ‘rent’ could once be defined as including rent, interest, VAT, service charge, insurance and any other sum in a lease, the new rules mean a landlord must use a certificated bailiff to collect rent, interest and VAT only.
Strettons Chartered Surveyors, which operates in London, Essex and Hertfordshire, has devoted an edition of its briefing notes to the issue, which is worth downloading as a pdf.
One of the big changes is that the rent must have been in arrears for seven days before notice is given by a certificated bailiff, giving the tenant a further seven days to pay up. This period extended by public holidays or Sundays.
As Strettons points out in a useful summary of the changes, it used to be that landlords themselves could levy distress from Monday to Saturday, sunrise to sunset. And a bailiff could be used if the premises were also partly residential – as, for example, many pubs are.
Now if the unit has an authorised residential element, say a flat above a shop, a bailiff cannot be used. But action can be taken any day between 6am and 9pm, or where a tenant trades out of hours.
Again, where once there was no right of appeal, a tenant can now apply for the notice to be set aside.
So what can a commercial landlord do when a business tenant falls into arrears? Well, if there is a forfeiture clause in the lease, then there is the option of bringing it to an end.
Or there’s the nuclear option of issuing a statutory demand, with the prospect of insolvency to concentrate the tenant’s mind. But that can be costly in legal fees and court costs and, if the tenant is declared bankrupt or the business wound up, the landlord might receive nothing.
There are hopes that the changes to the law will encourage landlords and tenants to engage in more constructive dialogue, especially when a tenant’s business hits a sticky patch. The Morning Advertiser report quotes pub property specialists as pointing out that it’s not in the interest of either party for there to be a change of tenant.
Equally, there are suspicions, not least those expressed by firms such as Strettons, of ‘a slowdown in our debt collection performance as savvy tenants “play the game”.’
For all your concerns about commercial rent arrears, SJ Collections can help or point you in the direction of specialist legal advice.