The commercial rent arrears and recovery (CRAR) scheme came into force on 6 April and is governed by the Tribunals Courts and Enforcement Act 2007 (the Act)and the Taking Control of Goods Regulations 2013 (SI2013/1894) (the Regulations). Since 6 April CRAR must be used for commercial property rental arrears and the common law right of distress for rent is abolished.
How does this effect the motor finance industry
CRAR is similar to distress in many ways, but there are important differences.
Previously, when a third party owner of a vehicle received notice from its customer that the customer’s landlord had instructed agents to enter its trading premises and had sought to distrain upon vehicle(s) belonging to the third party, then subject to the finance agreement between the parties having been terminated and the vehicle not having already been sold, the third party owner could serve the landlord and landlord’s agent with a notice pursuant to section 1 of the Law of Distress (Amendment)Act 1908, confirming its interest in the vehicle and requesting confirmation that the landlord and/or landlord’s agent would release possession of the vehicle back to the third party owner and not sell the vehicle. This was a relatively simple and cheap procedure.
However, with the common law right of distress having been abolished, this option is no longer open to third party owners. So what are the options now?
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How does CRAR work?
CRAR can be exercised by a landlord, if each of the conditions within section 77 of the Act are satisfied. These are:
1. The tenant must be in arrears before notice of enforcement is given (see below),
2. The amount of arrears must be certain,
3. The minimum amount of net unpaid rent must be an amount equal to seven days rent and
4. The tenant must be in arrears of the net unpaid rent when control of the goods is taken.
Once these conditions have been satisfied, the landlord must authorise an enforcement agent to exercise CRAR on its behalf and it must do so in writing (section 73(8) of the Act), citing the date of authorisation, the landlord’s details, the contact details of the agent authorised by the landlord, sufficient details of the premises, the amount of rent owed and the period in which the rent is owed.
The enforcement agent must then give the tenant notice that CRAR is to be exercised, at least seven clear days before it is intended to be exercised. The form and content of that notice is within regulation 7 of the Regulations.
Notice only has to be provided to the tenant at this stage and not to third parties. The ways in which service can be given are provided for within regulation 8(1) of the Regulations.
Once notice to the tenant has been provided , the enforcement agent can either enter the premises to take control of goods, or apply to the court for a warrant to enter the premises, which the court will grant if the court is satisfied that all of the following conditions have been met, which are:
1. An enforcement power has become exercisable,
2. There is reason to believe that there are goods on the premises for which control can be taken, and
3. It is reasonable in all circumstances to issue a warrant.
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By GlobalDataThe goods over which CRAR can be exercised are set out within schedule 12 of the Act. Goods belonging to a third party owner are not exempt goods within regulation 4 of the Regulations. Once the goods are under the control of the enforcement agent, the agent must produce an inventory of the goods as soon as reasonably possible. However, if any of the goods are co-owned by a third party, then the enforcement agent is under an obligation to produce separate inventories, setting out goods wholly owned by the tenant and goods which are co-owned (paragraph 34(3), Schedule 12 of the Act). A vehicle funder is not usually a co-owner, so notice is unlikely to be given to a vehicle funder.
What happens if your vehicle is taken control of by enforcement agents?
If you receive confirmation from your customer (the tenant) that your vehicle has been taken control of by enforcement agents, paragraph 60, Schedule 12 of the Act provides the funder with the option to apply to the court to claim its interest in the vehicle and provide notice of the application to the enforcement agents. By doing so, the enforcement agents must not sell or dispose of the vehicle without direction of the court.
However, when making the application, you are under an obligation to pay into court either
(a) an amount equal to the value of the vehicle, or a proportion of it (as directed by the court); and
(b) payment, at prescribed times, of any amounts prescribed in respect of the enforcement agent’s costs of retaining the vehicle.
Failure to make these payments allows the court the discretion to order the enforcement agent to sell the vehicle. It is also the case that paragraph 60(6), Schedule 12 of the Act allows the court to order the enforcement agent to sell or dispose of the vehicle, before it determines your application, if it considers it appropriate, so it’s recommended that any application is made as soon as notice is received. The court will then determine your application and if successful, may order the enforcement agent to release the vehicle to you.
Conclusion
Life under the new regime is very different and potentially more expensive, and you will have to ensure that you are diligent in keeping a close eye on what is happening with your customer and your vehicle. At the first sign that your vehicle may have been taken control of by enforcement agents, be prepared to make an Application to the court and notify parties of your interest quickly.
James Baird is a partner at Gateley LLP
