CRAR and the Impact on Farmhouses

As we explained in a previous e-alert, the new Commercial Rent Arrears Recovery (CRAR) regime became law on 6 April 2014 with the implementation of the Taking Control of Goods Regulations 2013. This marks the end of the era of distress which enabled landlords to take possession of their tenant's goods in lieu of rent.

CRAR is, as the name suggests, aimed primarily at commercial tenancies and the new regime provides that it will only be exercisable on such premises. This article looks in greater detail at the impact that CRAR has on farmhouses.

Section 75 of the Tribunals Courts and Enforcement Act 2007 provides that the definition of commercial premises will be satisfied if no part of them is let or occupied as a dwelling either by way of head or sub-lease. However, residential occupation of the premises or letting for such purposes in breach of a relevant covenant will not prevent CRAR applying.

Section 80 of the 2007 Act states that CRAR will apply to agricultural holdings and written tenancy agreements under both the 1986 and 1995 Acts fall within the definition.

So, what about a farmhouse which forms part of an agricultural holding? Part of the premises would certainly appear to be let as a dwelling. Can the provisions of CRAR be used to enter farmhouses and seize goods contained within?

There is clearly an element of residential use as well as business use where a holding includes a farmhouse. The 2007 Act uses the term "premises let as a dwelling" and so it would be helpful to consider what that means in the context of an agricultural holding.

Fortunately, the term "premises let as a dwelling" is a familiar one echoing back down the years in the Rent Acts and Housing Acts before providing us with a helpful sounding board in the form of the Protection from Eviction Act 1977.

The status of a farmhouse in the context of the 1977 Act was considered in the case of National Trust v Knipe (1997). The landlord issued possession proceedings following expiry of a notice to quit served in reliance on an unsatisfied notice to pay rent.

The tenant's last ditch challenge to the notice to quit was that it did not contain the information prescribed by the 1977 Act which warns the tenant to seek legal advice etc. The argument was that the holding was premises let partly as a dwelling and so the information should have been included.

The Court of Appeal found that premises let as an agricultural holding, even if there is a dwelling on the holding, do not constitute premises let as a dwelling. It is helpful that this finding was for the purposes of interpreting the 1977 Act which protects residential occupiers from eviction and harrassment. It therefore seems a reasonable assumption that any court asked to consider this issue in a CRAR context would reach a similar conclusion as the issue is one of lawful access to residential premises albeit for the purposes of debt enforcement.

Those commentators not concerned with matters agricultural have been quick to assert that CRAR cannot be used on mixed use premises. That is certainly true in respect of premises such as the traditional shop with flat over the top, let on a business tenancy but not in the case of agricultural tenancies which as per National Trust v Knipe are not viewed by the courts as mixed use premises.

An additional issue is that section 75(1)(c) of the Tribunals Courts and Enforcement Act 2007 confirms that commercial premises are defined as such if part of them is occupied as a dwelling.  It can be seen from the decision in National Trust v Knipe that farmhouses are not "let as a dwelling" but surely on any sensible analysis a farmhouse is occupied as a dwelling?  That also seems to be confirmed by National Trust v Knipe as it was specifically held in that case that section 1 of the Protection from Eviction Act 1977 protects occupiers of farmhouses from harassment and acts by landlords such as turning off essential services like electricity and water. Therefore occupiers of farmhouses were held to be residential occupiers for the purposes of the 1977 Act.  So where does that leave us in terms of interpreting the new CRAR regime?

CRAR, as the name suggests, is all about commercial rent arrears recovery.  It specifically applies to commercial premises and pursuant to section 80 of the 2007 Act, to agricultural holdings.

However, CRAR will still apply where commercial premises are being occupied for residential purposes in breach of the terms of the tenancy.  Farmhouses are clearly being occupied as a dwelling but so too are commercial premises in those circumstances. Given the specific exclusion for such circumstances in section 75(5) it was clearly contemplated by the draftsman of the 2007 Act that persons could still be occupying part of premises as a dwelling and still be subject to the provisions of CRAR. Arguably, the same is true of farmhouses given that the draftsman specifically included agricultural holdings at section 80.

The intention of the draftsman appears to have been that section 75 was designed to exclude mixed use premises such as a flat with a shop above as in the case of Patel v Pirabakaran (2006).  This is because section 75 specifically contemplates premises let purely as a dwelling but does not deal with such mixed use premises other than by way of section 75(1)(c) which allows for part of the premises to be occupied as a dwelling.

In Patel the decision in National Trust v Knipe was discussed at length. A distinction was made between the letting for mixed purposes of shop premises and residential accommodation and for the letting of an agricultural holding where the residential element is much less prominent. If that were thought to be too simplistic a view, the Court of Appeal said that sections 2 and 5 of the 1977 Act have very different purposes and, though undesirable, the phrase "let as a dwelling" could consequentially have a different meaning for each section of the 1977 Act.  This appears to be the starting point from which the draftsman worked and that is why CRAR applies to agricultural holdings because they are deemed to be let as wholly commercial premises albeit with a residential element.

If section 75 is not read as including farmhouses then you have to read section 80 as only including agricultural holdings if they are bare land only.  If the draftsman intended that it would have been easy to say so and would require very clear language.  That clear language is not evident.  It would also require the conclusion that agricultural holdings are not commercial premises when they are specifically included in the relevant chapter of the 2007 Act dealing with such premises. 

The Court of Appeal has differentiated between agricultural holdings and mixed use holdings under the Landlord and Tenant Act 1954.  In the case of agricultural holdings with farmhouses, rights of forfeiture can be exercised by way of re-entry as opposed to proceedings in Court.  In the case of mixed use premises under the 1954 Act rights of re-entry cannot be used by the landlord because of the residential element. It would seem that a similar distinction between the two types of properties will have to be made in respect of the CRAR regime and its application in the future.