Plans to draw the teeth of bailiffs, by forcing them to “telegraph” the seizure of goods ahead of their arrival, will receive a mixed reception in the commercial property world.
For hundreds of years, where business tenants have been in arrears with their rent, landlords have had the right to send the bailiffs in, without warning, to confiscate goods to the value of the money owed.
Often their mere arrival on the doorstep of commercial premises would result in errant tenants paying up on the spot.
But that is all due to change, says Paul Knight, a partner in the real estate department at Birmingham-based law firm Clarke Willmott.
Later this year, still-to-be-finalised laws will ban the “dawn raid” tactic and require bailiffs to give warning of their visit, effectively ensuring that anything of value is removed before they arrive.
Mr Knight says that although the new human rights-friendly procedure, known as Commercial Rent Arrears Recovery (CRAR), will thwart and infuriate landlords, it is likely to get a warmer reception from tenants, including large retailers, who occasionally slip up on their paperwork and dread the unannounced arrival of bailiffs.
“It permits a household name store, for example, with a reputation to protect, to sort out any perfectly innocent oversight that may have occurred, away from the glare of publicity,” Mr Knight added.
“Landlords, on the other hands, are likely to see it simply as a watering down of the rights they have had for centuries, and the loss of one of the remedies they have always enjoyed.”
He said many landlords feared having their hands tied at a time in the economic cycle when consumer confidence is shaky, and tenants are most likely to default on rents.
Mr Knight makes the point that the new law only applies to leases that are in writing. Verbal agreements sealed on a handshake are exempt, as are licensing agreements.
CRAR includes another major change to the law as it exists, says Mr Knight. It can only be used to recover rent owed for possession and use of the premises, and not for any element of service charge included in the overall sum.
“One of the problems that will arise is with tenants who are paying an inclusive rent,” Mr Knight said. “It might well be the case that it just isn’t clear how much of the figure relates to services, which can’t be recovered.
“Obviously this is going to cause arguments, because tenants will no doubt disagree with their landlords about just how much they actually owe, when the service element is deducted.
“We are now advising landlords to have nothing to do with inclusive leases. It is important to be very clear how much rent is being charged for the use of the premises, and that any service charges are shown separately,” Mr Knight added.
He went on: “There are some conditions that need to be satisfied before using CRAR. The tenant must actually be in arrears - you can’t send the bailiffs in to protect your investment on the basis of a whisper that a firm is in trouble.
“Also the amount of rent owned must be calculated with certainty, and must exceed the minimum amount laid down in the new regulations, probably going to be fixed at £200,” Mr Knight added.
Under CRAR, if a tenant’s weekly rent is £190, proceedings cannot be started immediately he defaults on his rent, and in any case he has 24 hours to make a payment.
“As things are at present, if a landlord has good reason to believe that a tenant can’t, or won’t pay his rent, or that he is planning to up and run, he might want to secure his position by sending in the bailiffs on the day following the rent falling due.
“Once the new legislation comes in that won’t be an option.”
Mr Knight agrees that the law of Distress for Rent is considered draconian by some in the sector, and has been under attack for some time from insolvency practitioners who point to New Zealand as a jurisdiction where no such laws exists, yet the property market remains buoyant.
“However, as a property litigator, I have always found it to be a very useful remedy. I like its immediacy. You put the bailiffs in, and the tenant has to deal with the situation.
“If the tenant can afford to pay, but is just messing the landlord about, the bailiff system works.”