Property & Real Estate Barristers
Does CRAR mean the right to forfeiture is waived? Commercial landlords should carefully consider their options…
9th April 2020
Case commentary: Brar v Thirunavukkrasu [2019] EWCA Civ 2032
The procedure by which a landlord may recover arrears of rent in relation to commercial premises was fundamentally changed several years ago. Chapter 2 of the Tribunals, Courts and Enforcement Act 2007 abolished the common law right to distrain for arrears of rent, replacing it with the commercial rent arrears recovery procedure (‘CRAR’). But what has been the impact of this change on whether a landlord taking enforcement action to recover arrears waived his right to forfeiture of a lease?
Background
There are various differences between the two remedies. Unlike distress at common law, CRAR is only available to landlords of commercial premises. CRAR, unlike distress, is exercisable only in relation to rent, which does not include sums reserved within the lease in respect of rates, council tax, services, repairs, maintenance, insurance or other ancillary matters. The landlord must give seven days’ notice before exercising CRAR; whereas for distress no notice is required except in certain limited situations. Under CRAR there is a requirement for at least seven days’ arrears to be owing at two distinct times: both before notice is served and before goods are actually seized; whereas distress allowed seizure of goods immediately upon accrual of any arrears. Furthermore, under CRAR, a landlord is required to give 7 days’ notice of sale of goods, as opposed to five under distress. The minimum timeframe for recovery of rent under CRAR is therefore 21 days. These changes (and others) are said to have been introduced in response to human rights-related concerns expressed by tenants about distress, as well as to rebalance landlords’ rights with those of other creditors.
Waiver of forfeiture
Despite the differences between the two remedies, the thinking amongst practitioners has been that CRAR, like common law distress, would waive a landlord’s right to claim forfeiture. But the courts had not considered the matter until the position was confirmed in Brar v Thirunavukkrasu.
As is well established, when the right to forfeit arises, a landlord must elect whether to enforce his right to forfeiture and thereby treat the lease as at an end, or to affirm the contract by doing some unequivocal act recognising the continued existence of the lease. The landlord must know of the facts upon which his right to re-enter arises, and his act of waiver must be communicated to the tenant.
The Brar decision
In Brar, quarterly rent went unpaid on 25 December 2015. On 18 January 2016, the landlord instructed enforcement agents to exercise their powers under CRAR to attend the premises and seize goods (but failed to give notice to the tenant, as required). On 1 February 2016 (erroneously stated in the judgment as 1 February 2015), the agents duly attended and seized goods. On 4 February 2016, the tenant paid the outstanding amount to the enforcement agents in full. On 12 February 2016, the landlord purported to forfeit the lease by peaceable re-entry.
At first instance in the County Court at Central London, HH Judge Madge decided that CRAR, like distress, operated as a waiver of a landlord’s right to forfeiture. Accordingly, he held that the purported forfeiture had been unlawful and ordered damages against the landlord for trespass and breach of covenant. Mr Justice Marcus Smith dismissed the landlord’s appeal to the High Court. The landlord appealed again and the case came before the Court of Appeal. The Master of the Rolls gave the lead judgment.
The Court of Appeal dismissed the landlord’s appeal. It held that the fact that CRAR continues to be exercisable up to six months after the end of a lease (if certain conditions apply) did not mean that the exercise of CRAR was not an unequivocal act affirming the existence of the lease. Under the 2007 Act, CRAR can never be exercised after the lease has been determined by forfeiture. But the lease had many years to run and had not excluded the tenant’s rights of renewal under the Landlord and Tenant Act 1954. Therefore, the only way the lease could have been determined was by forfeiture. The exercise of CRAR must, therefore, have recognised the existence of the lease. Moreover, the fact that CRAR may, in certain circumstances, be exercised after the end of the lease could not logically throw any light on whether the exercise of CRAR before the end of a lease operated as a waiver.
An argument was raised in respect of s.210 of the Common Law Procedure Act 1852. That section effectively gives a landlord a statutory defence to a claim of waiver where at least six months’ arrears were outstanding. It was argued that where at least six months’ arrears were outstanding at the time that the lessor exercised CRAR, such exercise of CRAR was not an unequivocal affirmation of the continuation of the lease as the lessor could subsequently have served proceedings for possession pursuant to s.210 and, were the lessor to do so, the statute would entitle the lessor to an order for possession notwithstanding the earlier exercise of CRAR. The Court of Appeal acknowledged that a landlord had a right under the 1852 Act to claim possession on grounds of forfeiture after CRAR had been exercised, and that that right existed separately from its right to re-enter under the lease. However, the fact that it existed separately meant that it had no bearing on whether a right arising out of the lease had been waived. The Court rejected the landlord’s argument that it did not matter whether the landlord actually intended to bring a claim under s.210 at the time of exercise of CRAR. To accept this argument would mean that forfeiture by CRAR would be abolished in all those cases where at least six months’ arrears were outstanding.
In respect of the argument that there had been no CRAR due to a lack of notice, the Court of Appeal held that even if the CRAR had been technically invalid, the enforcement agents’ presence at the premises and seizure of goods amounted to an unequivocal act recognising the lease. It was irrelevant that the enforcement agents’ presence on the premises had been a trespass.
Commentary
It is said that this case decides that CRAR is a waiver of a right to forfeiture. But is that overly simplistic? There had been no valid exercise of CRAR, because of the failure to give notice. What was important was that the attendance of the enforcement agents and the seizure of goods constituted an unequivocal act by the landlord recognising the continuance of the lease. The landlord’s election to treat the lease as continuing was clearly communicated to the tenant despite the technical invalidity of the CRAR. From this, it could be said that it is not the exercise of CRAR in itself that constitutes the waiver, but the acts contained within a typical exercise of CRAR that serve to communicate the landlord’s unequivocal election. This is in keeping with the settled law of election, as stated by the House of Lords Scarfe v Jardine (1882) 7 App. Cas. 345 at 361:
‘…so soon as he has not only determined to follow one of his remedies but has communicated it to the other side in such a way as to lead the opposite party to believe that he has made that choice, he has completed his election and can go no further.’
It might also be thought that in a case where a landlord were to instruct agents to attend at premises and seize goods, but where in the event the agents carried out the CRAR in some imperfect way (such as, for example, removing goods of too high a value when lower value goods would have sufficed to cover the arrears, contrary to s.12 Sch.12 of the 2007 Act), this would not negative the waiver so long as the landlord’s message of waiver is clearly and objectively communicated by whatever acts do, in fact, take place. Whilst it is fair to conclude that this case decides that a typical exercise of CRAR operates to waive a right to forfeiture, it remains to be seen just how defective a purported exercise of CRAR may be before it fails to operate as an effective waiver.
This is in line with the Court’s approach on the relationship between CRAR and distress. Although distress was a common law principle and CRAR was statutory, waiver was nonetheless a common law principle the conditions for which were not altered by CRAR.
As to the decision on s.210 of the 1852 Act, there is arguably an element of circularity within the Court of Appeal’s reasoning. It was decided that the existence of the right to claim forfeiture under that section could not act as a defence to waiver, since if it could that would mean CRAR could never operate definitively as a waiver. But this would seem to assume that CRAR can operate definitively as a waiver, when this is the very issue the case is said to be deciding.
This case decides what practitioners had for some time assumed to be the position. It also serves as a reminder to landlords of commercial premises to carefully consider their options before setting out on any particular course of enforcement action.