If you manage a residential development that contains a commercial element – read on! A recent High Court case has set out some important implications for the processes you can lawfully use to recover outstanding arrears.

This case confirmed that exercising CRAR means waiving the right to forfeit a lease, as Brady Solicitors’ Jonathan Watts explains.

If you wish to use forfeiture to recover arrears, the lease must have come to an end. Under the CRAR procedure however, the lease is recognised as continuing.

This incompatibility effectively means that, if a freeholder (or their managing agent) exercises CRAR to recover the arrears, they then cannot move to forfeit the lease.

This was confirmed in the recent High Court case of Thirunavukkrasu v Brar & Anor*.

CRAR stands for the Commercial Rent Arrears Recovery procedure and it replaced the common law remedy of distress. Under CRAR, the freeholder can instruct an enforcement agent to take control of the goods of a tenant of commercial premises and sell these goods to recover the rent arrears.

In the Thirunavukkrasu case, there were commercial rent arrears of just over £8,000. The freeholder instructed enforcement agents and then there was a fairly quick series of events:

  • 1 Feb 2016: The enforcement agent exercised CRAR over the tenant’s goods.
  • 4 Feb 2016: The tenant paid the arrears by electronic transfer to the enforcement agents
  • 12 Feb 2016: The freeholder moved to forfeit the lease by re-entry
  • 17 Feb 2016: The outstanding arrears (paid on 4 Feb) were received by the freeholder

The tenant argued that the forfeiture was unlawful. The county court agreed; it held that, by exercising CRAR, the freeholder had waived its right of forfeiture.

The freeholder appealed. The High Court dismissed the appeal and the judge found it was clear that, when CRAR was exercised the lease was still in existence, with no act to forfeit it having been carried out.

The judge held that in this case, carrying out CRAR was “an unequivocal representation that the lease was continuing” and the freeholder had therefore waived the right to forfeit.

Brady Solicitors’ advice?

Looking ahead, it is likely that any exercise of CRAR is likely to amount to a waiver of the right to forfeit. So, where the right to forfeit a lease exists, be aware that you will lose this right if you exercise CRAR to recover arrears. CRAR assumes that the lease still exists, which then makes any subsequent forfeiture proceedings unlawful.

In our experience, it is clear that the Court is widening the scope of situations that will create a waiver and a loss of the right to forfeit. The prudent approach is to take every step to preserve the right to forfeit. In addition to understanding the implication of CRAR on your commercial rent arrears, these steps should also include avoiding any form of new demands being sent to a leaseholder in arrears.

It can be a challenge to understand how and when you may have waived the right to forfeit. For expert legal advice on this and other commercial and residential property management challenges, contact the specialists at Brady Solicitors.

*Thirunavukkrasu v Brar and another [2018] EWHC 2461 (Ch)