What does CRAR mean for sub-tenants?
On 6th April 2014, the procedure for commercial rent arrears recovery (CRAR) set out in the Tribunals Courts and Enforcement Act 2007 comes into force.
Pre 6th April 2014
Prior to 6 April 2014 where a superior landlord’s immediate tenant was in arrears of rent the superior landlord was able to serve notice pursuant to Section 6 of the Law of Distress Amendment Act 1908 (‘Section 6 Notice’) on a sub-tenant, requiring it to pay the sub-lease rent directly to the superior landlord until the arrears set out in the notice were paid.
Post 6th April 2014
From 6 April 2014 a superior landlord will have to follow CRAR.
Section 81 Notice
Under CRAR there’s a similar procedure to the Section 6 Notice procedure, this will be referred to as a ‘Section 81 Notice’.
All of the provisions concerning CRAR, including the type of rent and the amount of rent outstanding apply. CRAR allows a landlord to instruct an enforcement agent to take control of a tenant's goods and sell them in order to recover an equivalent value to the rent arrears.
CRAR can only be used for arrears of rent of commercial premises. An enforcement agent must exercise the CRAR procedure on behalf of the landlord.
Requirements of the Section 81 Notice
The notice must:
a) Be in writing
b) Be signed by the superior landlord
c) Contain the following information:
- The superior landlord's name, reference and contact details and the date of the notice
- The amount of rent the superior landlord has the right to recover from the immediate tenant by CRAR
- While the arrears remain, the sub-tenant must pay its rent directly to the superior landlord until the notified amount has been paid, or the notice has been replaced or withdrawn
- The notice can be withdrawn notice in accordance with the Taking Control of Goods Regulations 2013 (TCGR 2013)
e) Be served using the method prescribed under TCGR 2013
Sub-tenant’s liability and off-setting
The notice will take effect 14 clear days after service of the notice.
The sub-tenant can deduct any amount it pays under the Section 81 Notice from the rent it pays to its immediate landlord. If the sub-tenant's landlord is also a sub-tenant, and receives a reduced rent, it too can deduct an equal amount from the rent it is liable to pay.
What if the sub-tenant fails to pay?
Once a Section 81 Notice has been served on a sub-tenant, it is treated as an immediate tenant of the superior landlord for the purpose of enforcement remedies for non-payment of rent. Accordingly, the usual methods of enforcement will be available, including CRAR. However, it is not yet clear whether a new right to forfeit will arise as a result.
In practice, the Section 6 Notice procedure provided landlords with an effective remedy for arrears of rent. The Section 81 Notice will provide an equally effective, if not more effective remedy, as it will be carried out by an Enforcement Agent and the threat of the Enforcement Agent taking control of the sub-tenants goods will be at the forefront of the sub-tenant’s mind.
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