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For landlords and tenants of business premises, Christmas is not only about festivities; it is also a traditional rent payment day. And as the merriment of the season fades, many landlords experience the New Year heartburn of tenants who have failed to pay. What to do?
It is very tempting for landlords to launch every weapon in the rent-recovery armoury, but the recent case of Thirunavukkrasu v Brar (Court of Appeal, 3 December 2019) is a lesson in the dangers of that approach.
In many cases, a landlord will have insured against the non-payment of rent by taking a rent deposit or requiring a guarantor. If not, or where a deposit is exhausted, there are three popular remedies: The service of a statutory demand under the Insolvency Act 1986; the exercise of Commercial Rent Arrears Recovery (known as “CRAR”); or forfeiture. A landlord might also sue for rent, but that is less attractive than the other three remedies, because of the time it can take.
Great care must be taken in pursuing any of the three popular remedies. All of them are subject to strict rules which, if infringed, can jeopardize the rent recovery process or, worse, turn out to be very costly for the landlord, as it was in the Brar case.
Mr & Mrs Brar were landlords of business premises in Teddington, Middlesex. Their retail tenant fell into arrears and they decided to instruct enforcement agents to exercise CRAR. CRAR is the modern, statutory version of sending in a bailiff to levy distress; the impounding of a tenant’s goods until he pays up, or the sale of the goods. It can be very effective when a tenant has valuable goods on the premises, such as in a retail or wholesale business. It is subject to strict rules under the Tribunals, Courts & Enforcement Act 2007, but a reputable authorised enforcement agent should be expected to get those right.
However, that was not the issue in the Brar case. The problem was that the landlords had succumbed to the common temptation to seize the premises back from the tenant by forfeiting the lease, in addition to exercising CRAR at the same time. It cannot be done.
Forfeiture is the termination of a lease by a landlord, following a breach of lease by the tenant. If the premises are unoccupied, it is typically achieved by a landlord changing the locks overnight. Alternatively, a landlord may forfeit by suing for possession. It is commonly used where a landlord is looking to get the premises back for some reason, or where they might easily be re-let to a better tenant, or if it is the last resort.
Amongst the many conditions which apply to forfeiture is the rule that a landlord must not do any act which simultaneously recognises the continued existence of the lease. To put it another way, forfeiture must be an unequivocal act of lease termination and, once the act of forfeiture occurs, the landlord must do nothing which would be consistent with the continued existence of the lease, such as continuing to exercise CRAR. The Court of Appeal has confirmed that this same principle, which applied to levying distress, also applies to CRAR.
That is the trap which Mr & Mrs Brar fell into. They now very likely face a hefty claim from their wrongly dispossessed tenant, who otherwise would have had another 18 years to run on his lease.