Coronavirus and CRAR: something not quite right?  Landlords can still seize tenant goods if a quarter’s rent is unpaid

The Government has now enacted its further protection for tenants, announced last Thursday.  What had seemed to be an error in the press briefing concerning commercial rent arrears recovery (CRAR) rules, has been carried into the legislation.  “CRAR” allows a landlord to serve notice and then seize tenant goods to the value of the unpaid rent.  The wording of these new rules provides that CRAR will still be permitted where there are more than 90 days of rent arrears, but as a quarter’s rent is just over 90 days (save for the September quarter which is just under), landlords can presently still use CRAR where a quarter’s rent is outstanding.

On 23 April the Business Secretary Alok Sharma gave notice that further measures would be introduced to balance out perceived aggressive rent collection strategies being undertaken by landlords despite the messaging surrounding the introduction in March of the Coronavirus Act 2020.

Enacted on 25 March, section 82 of the Coronavirus Act 2020 provides for the suspension of a landlord’s rights of re-entry or forfeiture for non-payment of rent during the “Relevant Period”. This period came into being the day after the Act came into force, and expires on 30 June unless further secondary legislation pushes that date back. As a balancing measure, section 82 also provides that unless a landlord explicitly waives a breach of covenant, nothing that the landlord does or fails to do during the Relevant Period will amount to a waiver of the unpaid rent. Until the Relevant Period lapses, actions and orders are generally placed on hold.

As we reported on 23 April and 24 April, the Business Secretary signalled an intention that landlords should also place on hold other forms of action to recover unpaid rent; do not wind up a tenant in arrears, and do not serve a statutory demand, was the message. Looking around at what else a landlord might hope to use in order to recover unpaid rent, the Business Secretary also intended to take away the landlord’s ability to seize tenant’s goods to recover rent under CRAR.

The press release of 23 April was amended on 25 April but, nonetheless, still refers to a landlord’s access to CRAR being denied unless a landlord is owed “90 days of unpaid rent”. Admittedly the devil will always be in the detail, and so we did not take a press release from the Department of Business, Energy and Industrial Strategy as the last word, but the 90 day gateway requirement appeared a little odd, to say the least^[1].

There is a debate to be had in “normal times” about the accrual of rent, and the archaic reliance on English quarter days. For the present purposes however, the Business Secretary’s announcement seemed to ignore the fact that the overwhelming majority of leases see rent paid (or not!) on the quarter day, and that a failure to pay means that more than 90 days’ rent becomes overdue.

The Statutory Instrument (SI) giving effect to the Business Secretary’s announcement was put before Parliament on Friday 24 April, and came into force on 25 April. The SI works by amending the CRAR rules, which are contained in the Taking Control of Goods Regulation 2013.  The amendments create an “Emergency Period” in the CRAR mechanism, and go on to provide that in relation to service of a notice during the period the minimum amount of net unpaid rent for CRAR to become exercisable is “an amount equal to 90 days.”

We had been expecting some refinement to the Business Secretary’s press release, a reference perhaps to quarter days, or a formula that at least incorporated quarterly payments, so as to provide for quarter days being further apart than 90 days. Unfortunately, and without further explanation, the devil in this new detail is obvious: unless a landlord has accepted a payment on account from the tenant, or arrangements are put in place for monthly payments to be made, a single quarter unpaid is enough to allow the CRAR to be engaged. It is not until the September quarter that the threshold makes any sense but, by then, we all hope to be back to work. As drafted, the new SI simply misses the point.

Even though the threshold period of 90 days is carried over into the SI’s commentary, we doubt that this was the intention behind the secondary legislation. Was it really intended to allow CRAR to continue for a quarter’s unpaid, and only to prevent action against tenants with monthly rent bills? Given that a landlord cannot be forced to accept a payment on account of rent, this seems to be the practical effect of the new SI. On this analysis, the vast majority of unpaid landlords may continue to seize tenant goods for unpaid rent.

Proof, perhaps, of the old aphorism that bad law is made in haste.

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To discuss any aspect of this blog in further detail please contact Simeon Gilchrist, Joanna Osborne, Stephen Brower, or any member of Edwin Coe’s Business Protection Team.

[1] Grateful thanks to Edward Francis, barrister, of Enterprise Chambers, who challenged our original post on CRAR and who can claim to be the first to have done the number crunching.

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