UK: The Exercise Of CRAR And Forfeiture

Last Updated: 25 January 2019
Article by Clyde & Co LLP

Most Read Contributor in UK, March 2019

The perils of forfeiture by peaceable re-entry are illustrated in the case of Saravananthan Thirunavukkrasu v B S Brar and J K Brar [2018] EWHC 2461 Ch.

In an appeal against summary judgment given on a preliminary issue, the landlord sought to argue (amongst other things) that the exercise of CRAR did not operate to waive the right to forfeit.

Commercial rent arrears recovery - CRAR

The common law right of distress for rent was abolished in April 2014 and to some extent replaced by an enforcement procedure known as "CRAR" which is set out in the Tribunal Courts and Enforcement Act 2007 (the "Act") and the Taking Control of Goods Regulations 2013.

Waiver of the right to forfeit

Where there is a breach of a lease which gives the landlord the right to forfeit, they must make a choice. They can enforce the right and treat the lease as at an end, or decide not to enforce the right and treat the lease as continuing.

However, various acts on the part of the landlord may amount to a waiver of the right to forfeit, including the demand and acceptance of rent. Under the "old" law, levying distress waived the right to forfeit, other than in the case of forfeiture for arrears of rent under the Common Law Procedure Act 1852 (applicable in very limited circumstances). Because distress could only be exercised while the lease was alive, it waived any forfeiture up to the day of distress.

CRAR, by contrast, can be exercised after a lease ends, in the limited circumstances specified in the Act.

Background facts

A lease of premises at 101 Stanley Road Teddington was granted on 10 July 2013 for a term expiring in May 2034. According to the terms of the lease, rent was payable in equal instalments on the usual quarter days.

Although the precise amounts were not agreed, the tenant accepted that it was in arrears of rent during the course of the lease.

In January 2016, the landlord instructed enforcement agents to recover the arrears by the exercise of CRAR.

On 29 January 2016, the tenant paid a cheque for £3,000 into the landlord's bank account.

On 1 February 2016, enforcement agents instructed by the landlord exercised CRAR for stated rent arrears of £8,270. With fees, the total was £10,533.20, which amount the tenant paid to the enforcement agents on 4 February 2016.

Believing that he had cleared all the arrears of rent when he paid the enforcement agents, the tenant subsequently cancelled the cheque for £3,000 which he had paid into the landlord's bank account. The cheque was dishonoured and the landlord contended that the amount sought by the enforcement agents was reduced by the same amount.

The landlord purportedly forfeited the lease by peaceable re-entry on 12 February 2016.

Summary judgment

The question whether the landlord's purported forfeiture was lawful was determined as a preliminary issue. At first instance, His Honour Judge Madge decided that the landlord's action was unlawful, essentially because, under the "old" law, the landlord's conduct would have amounted to an election to treat the lease as continuing. The last rent payment before the forfeiture was 25 December 2015 and the next rent payment was not due until 25 March 2016. At the time of the purported forfeiture on 12 February 2016, there were no arrears supporting the landlord's re-entry of the premises, which was therefore unlawful. The judge concluded that, because CRAR effectively replaced distress for rent, the same principle applied.

The appeal

On appeal it was held that the judge had been wrong to assume that the exercise of CRAR amounted to waiver just because that had been the effect of distress. Material differences between the old and new regimes meant that CRAR was not the equivalent of distress for rent. The law of waiver and election, however, continued to be governed by the common law.

The landlord argued that the exercise of CRAR could not be an unequivocal recognition of the continuation of a lease because there were circumstances in which it could be exercised after the end of a lease.

The appeal judge dismissed the landlord's arguments based on a consideration of the facts of the case. The lease was not at an end on 1 February, when CRAR was exercised and, in addition, the statutory conditions which permit the exercise of CRAR after the end of a lease were not met. CRAR could therefore only be exercised while the lease continued. In the circumstances, the landlord's exercise of CRAR was an unequivocal communication that the lease was continuing.

The landlord's other grounds of appeal were also dismissed.

The article first appeared in our Real Estate Bulletin - January 2019.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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