In the current difficult economic climate, we are seeing a marked increase in the number of commercial landlords relying on the ancient remedy of Distress when tenants are unable to pay the rent. Despite this many landlord and tenants are unfamiliar with the remecy of Distress.
While legislation was passed in July 2007 to abolish the remedy, this has yet to come into force and commercial landlords and tenants both need to be aware of the rights landlords currently retain. Distress can also affect the rights of third parties, such as suppliers of goods to commercial tenants.
What is distress?
Under the current law, once a tenant falls into arrears of "rent" (which can in fact include service charges, council tax and monies relating to rates) the landlord is entitled to seize the tenant's goods (referred to as "distraint", to sell them and to use the proceeds to discharge the outstanding "rent". The landlord may exercise this power as early as soon as the rent becoimes overdue and does not even require a court order.
There is limited protection for third parties who find that their possessions are distrained upon by landlords when left on the property of the tenant. The remedy is plainly weighted in favour of the landlord. Suppliers should therefore consider implementing well drafted retention of title provisions as well as other credit control measures.
Following a wealth of debate however, the new law is designed to swing the balance back in favour of the tenant.
Abolition of distress
The new law is expected to come into force in April 2012 bringing with it a new regime for commercial rent arrears recovery. Only landlords under a written lease of wholly commercial premises will be able to use the new procedure and only certified enforcement agents will be able to take control of tenants' goods under the procedure.
Actionable sums will be restricted to "pure" rent plus interest and VAT, removing the landlord's ability to distrain for service charges or other related liabilities. Additionally, the tenant will have to be given prior written notice of the landlord's intention to use this method of enforcement and further notice prior to sale of the goods. Third party rights will be strengthened and enforcement agents will only be able take control of goods which actually belong to the tenant. In order to avoid disproportionate enforcement, only goods to the amount of the outstanding sum may be taken (plus an amount for costs) unless only goods of a higher value are on the premises.
With the rpending estriction of landlords' rights in this area, the process of recovering arrears of rent from tenants through possession and sale of goods will become much more hazardous. For the time being, however, distraint represents an effective way for landlords to ensure they are not losing out to defaulting tenants in this time of recession and tenants need to be aware of their exposure and be proactive by agreeing rent reductions or holidays in advance if they see trouble ahead.
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