UK: Effective Enforcement and Commercial Rent Arrears

Last Updated: 2 September 2003

By Dan Hemming and Sarah Thompson

The Government’s Civil Enforcement Review has produced another new proposal. The latest white paper covers the regulation of warrant enforcement agents and the recovery of commercial rent arrears. The review is a comprehensive set of measures aimed at reforming the civil justice system.

Effective Enforcement: Improved methods of recovery for civil court debt and commercial rent and a single regulatory regime for warrant enforcement agents was published in March 2003.

There have been several previous attempts to review the enforcement system, but so far none have proved to be of any substance. The consultation period for the current proposals expired on 18 June 2003.

Broadly speaking the proposals aim to:

  • abolish distress for rent in respect of domestic properties;
  • introduce a new commercial rent arrears recovery system;
  • improve the regulation of enforcement agents through a statutory executive non-departmental body;
  • provide better access to information through data disclosure orders; and
  • improve court based enforcement methods.

Commercial rent arrears recovery

The Government believes that the current distress for rent procedures are not an appropriate or proportionate remedy and should be abolished for residential purposes.

With regard to commercial properties, it is proposed that enforcement action should continue to be available for use by enforcement agents. However, as part of the Government’s plans to unify and rationalise the current mix of legislation and common law on distraint, the paper introduces additional safeguards to replace the current distress for rent procedures.

Licensed enforcement agents will be able to collect commercial rent arrears on the written instruction of commercial landlords. But it will not be possible to levy distress against residential premises or commercial premises with inhabited living quarters attached. The white paper goes no further to explain the limits of what are "commercial" properties.

The rationale behind the change is to create a more accessible and fair procedure. It is designed to make the new commercial rent arrears recovery remedy a transparent one, which clearly sets out the actions landlords and agents are legally entitled to undertake.

The current remedy of distress for rent will be totally abolished. A series of legislative measures will introduce the new procedure. The substantial and procedural rules will be underpinned by a code of practice issued by the Security Industry Authority, governing the actions of enforcement agents.

The new regulations will cover similar issues to the existing debt enforcement rules, including the minimum period of rent outstanding, advance notice, sale, information that must be provided to the debtor and remedies.

The commercial rent arrears recovery system will only be available for the collection of "pure rent". It is not intended for the collection of service charges or any other variable charge collected under commercial leases.

Under the present distress for rent rules, landlords can take action as soon as the rent is overdue and without notice. In order to ensure that the use of the commercial rent arrears recovery procedure and the action taken are proportionate, it is proposed that there should be a reasonable minimum amount of arrears outstanding before any action can be taken.

The proposed solution is to create a formula to establish this minimum amount. This might be a percentage of the rent or a period of rent in weeks or months. The following options are being considered:

  • defining a specific quantum;
  • providing for a minimum specified period of rent that is overdue;
  • defining the minimum in terms of the period over which rent is payable (so if rent is payable weekly, one weeks’ rent; monthly, one month etc.);
  • that enforcement agents’ costs should not exceed a given percentage of the amount overdue.

The new regime will also prevent landlords from carrying out enforcement action themselves. Instead, they will have to instruct a licensed enforcement agent in writing.

Landlords will have to give the tenant a minimum of seven calendar days’ notice that enforcement action will commence if the arrears remain unpaid. (The landlord may request the enforcement agent to do this as part of their contract.) In addition, landlords may reserve the right to apply to the court to dispense with this notice if there are reasonable grounds to do so.

Enforcement agents will be bound by the rules set out in the legislation. These will cover entry, exempt items, third party goods, agreements, inventories, levy, abandonment, sale, payment, and remedies for debtors and creditors.

There will be no limitation on the hours during which this enforcement action may be taken. It will be possible to take legal control of goods at any time the business is trading. But agents will be required to do what is reasonable in all the circumstances.

Once the goods have been seized, the landlord will have to give the tenant 14 days’ notice before they are sold. This is to ensure that the tenant has time to seek legal advice.

Any remedies against the tenant for interfering with goods taken into legal control will be for compensatory damages only. This is to ensure that excessive penalties do not increase the debt unduly.

Regulation of enforcement services

The Government proposes to establish a statutory executive non-departmental body to regulate private and public enforcement agents. The suggestion currently being entertained is to widen the scope of the existing Security Industry Authority with the aim of raising standards.

There will be a single piece of enforcement legislation requiring all agents to be licensed. There will be legislative criteria for approval, accreditation and authorisation.

Charging orders

The Government has taken the view that the existing procedure generally works well and no significant changes are planned. Registration against the property will remain an essential feature of the process.

The full text of the white paper is available on the Lord Chancellor’s Department website: www.lcd.gov.uk/enforcement/wp

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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