Forfeiture and CRAR
Date: April 12th 2019
Commercial Rent Arrears Recovery & A Landlord’s Right of Forfeiture
– A Case Study: Saravananthan Thirunavukkrasu v Brar and Brar [2018] EWHC 2461 (Ch)
Introduction
As a landlord, you may at some point find yourself in the difficult position whereby your tenant has defaulted on it’s payment of rent. It is important to know how to correctly recover what you are owed, alongside understanding your rights and obligations to the tenant and how your actions might affect the continuation of the Lease.
Distress was a common law right that permitted a landlord to take control of a tenant’s goods to recover money owed to them in rent arrears. This right was abolished by Part 3 of the Tribunal, Courts and Enforcement Act 2007 (“the Act”) which came into force on 6 April 2014. The Act instead introduced the process of Commercial Rent Arrears Recovery (CRAR).
Unlike distress, CRAR can only be used in relation to properties that are wholly in commercial use to recover principal rent. CRAR is more controlled than the remedy of distress. It can only be exercised by certified enforcement agents following the procedure set out in schedule 12 of the Act.
Most commercial leases allow a landlord to terminate a lease by way of forfeiture should the tenant breach its obligations. However, as a landlord, if, once a breach occurs, you continue to act in a way that treats the lease as continuing (for example by accepting rent), the right to terminate by way of forfeiture can be lost.
The recent case of Saravananthan Thirunavukkrasu v Brar and Brar [2018] EWHC 2461 (Ch) displays the practical applications of CRAR (in comparison to the remedy of distress) and how this process interacts with a landlord’s right of forfeiture.
The Background
The tenant was granted a 21-year lease, with rent payable in four equal quarterly instalments. The rental payment falling due on the 25th December 2015 went by unpaid by the tenant.
The lease contained a forfeiture clause stating “The landlord may re-enter the property at any time after any rent is unpaid 21 days after becoming payable whether it has been formally demanded or not“. As a result, a right for the landlord to forfeit arose on 15th January 2016.
The landlord instigated the CRAR process and on 1st February 2016 instructed enforcement agents to enter the property and seize goods for the value of the stated arrears (£8,270). This sum was duly paid to the landlord on 17th February 2016..
However, on the 12th February (prior to receiving payment), the landlord entered the property to forfeit the lease by peaceable re-entry.
The tenant claimed that the forfeiture was unlawful because the exercise of CRAR acknowledged the continued existence of the lease.
The Court’s Findings
On appeal, the High Court said that the remedy associated with CRAR modified the right to distrain. It was noted that the 2007 Act does not set out circumstances in which CRAR might be exercised once a lease had come to an end and, under the facts of the case, CRAR could only be used when the lease was continuing.
By using CRAR, the landlord had elected to treat the lease as continuing, and as such, lost the right to forfeit.
An important note is that timing is critical. The lease allowed 21 days after the payment fell due for the right to forfeit to occur. Had CRAR been exercised before the 21-day period had expired, the landlord would not have waived the right to forfeit.
The ruling in this case provides reassurance for landlords and tenants that CRAR will affect a right of forfeiture in a similar way to the now defunct right of distress.
Should you have any questions relating to your rights as a landlord or tenant or any other property litigation matter, please do not hesitate to contact us on 01792 650000 where we will be happy to assist.
