Recovery of arrears of rent by way of Common Law Distress

The following outlines the recovery of arrears of rent by way of Common Law Distress, both from the legal and practical viewpoints, and also mentioning some of the advantages to be gained over alternative legal procedures.

The Landlords right to distrain is of Common Law origin, although it has been modified by statute, both by conferring additional rights and privileges on the landlord and also protecting the tenant from an oppressive attitude by the landlord.

It is necessary that the following conditions are satisfied before the remedy of distress can be exercised.

There must be an existing demise whereby a landlord and tenant relationship is created. However, where a landlord gives his consent for the tenant to hold over on the same terms after the expiration of the tenancy, the landlord still  retains the right to distrain.

1. The amount for which the distress is to be made must be certain. That is to say, the landlord must be able to specify, in accordance with the terms of the lease or agreement, the exact amount of arrears, the date on which they fell due and the period they cover   

2. The rent must be in arrears. In most commercial leases the rent falls due on 'Quarter Day', so that the following day the rent is in arrears and the landlord can proceed with the distress.

In general the landlord will well be advised to employ the service of a Certificated Bailiff to act as his agent in exercising his right to distrain. The reasons for this are, firstly, it will assist in keeping a harmonious relationship between landlord and tenant [i.e. the bailiff takes the blame], secondly, a good bailiff will know precisely the rights of the landlord and, accordingly, will be able to take the correct action, adopt the right attitude and, through close liaison with his client keep him fully informed and advised, thirdly, being an officer of the Court the Bailiff must at all times act in a thoroughly professional manner.

The Distress for Rent Rules 1988 which came into force on the 1st February 1989 now require inter alia stringent conditions to be met by any person who applies to a Judge of the County Court for a General Certificate to levy distress for rent in England and Wales.

It is necessary for the applicant to satisfy the Judge that he possesses sufficient knowledge of the law of distress and, in addition, is a fit and proper person to hold a certificate. The application, in Form 3 of the Rules must provide two references, one of which must deal specifically with the applicant's knowledge of the law of distress and his previous experience of levying distress.

Ideally, therefore, the required references should be provided by a 'Solicitor or Chartered Surveyor who possesses such knowledge of the applicant, together with the confidence to support the application. Rule 5[2] of the 1988 Rules state that an application for a general certificate "shall not be granted except on the personal attendance of the applicant and his examination on oath at the hearing". The Judge will ask the applicant any questions which he feels are relevant and in the result either grant or refuse the Certificate.

The Rules also require the applicant to lodge with the Court a Bond by way of security to the value of £10,000 which will be provided by a leading insurance company, together with a certificated copy of a search of the Registered of County Court Judgements against the applicant's full name at his home and business addresses for the last six years.

The new Rules are clearly intended to safeguard the interests of both the landlord and tenant by allowing certificates to be granted only to mature persons with sufficient knowledge, experience and good character to undertake distrain work. Once granted, the certificate is effective for a period of two years and thereafter the Bailiff must reapply to the Court for its renewal. During the period, which the certificate is in force, any complaint as to the conduct or fitness of the Bailiff who holds a certificate can be made to the Court from whom the certificate was granted.

In the event that such a complaint is made, the judge will specify a hearing date when both parties can attend and make representations. Following the hearing the Judge has the power to cancel the certificate and/or forfeit the security deposited with the Court[Rules 8 and 9]

The trust that both the Court and the landlord put in the Bailiff is indicated by the fact that a landlord can instruct a Bailiff a levy distress for rent on commercial premises without recourse to a Court Order. Tenants of commercial premises are not subject to restriction and control of the Rents Act.

Immediately upon the receipt of instructions, which can be given by sending a completed form of Authority [copy enclosed], fax number: 01883 341 941, or simply by telephone, the case will be processed and action taken. A Bailiff will thereafter physically attend the premises in question and, if no payment is forthcoming, make an inventory of all goods of value found therein. A copy of the Notice of Distress and Inventory will be handed to the tenant or senior member of staff, who will also be required to sign a form of Walking Possession Agreement have been drafted in the 1988 Rules, a copy of which is enclosed. The Agreement is now on the reverse side of the Notice, together with the new scale of fees for the tenant, which is liable. By signing this Agreement the tenant acknowledges that the goods referred to on our Inventory have been seized and that they are impounded on behalf of the landlord. The tenant then has a period of 5 days to clear days in which to tender payment.

In the absence of payment, or a satisfactory arrangement being made, the Bailiff will re-attend the premises and remove the distained goods to public auction rooms. Fortunately, in practise this occurs only in a small percentage of cases where there is no hope of the tenant's business surviving. The best possible price must be obtained for the goods and the proceeds used to satisfy the outstanding rent and costs.

On behalf of the landlord of commercial premises the Bailiff can distain on all goods found on the demised premises. However, it must be stressed that certain goods are privileged/protected from distress, in that over many years certain exceptions have been made to the above general rule, both by common law and statute. The common law exceptions comprise goods absolutely privileged and goods conditionally privileged. The former includes good as which are on the premises by way of trade [e.g. customers' clothes in a dry cleaners], perishable items and goods already in the custody of the law by virtue of an execution. The latter mainly concerns tools of the trade, which can be distrained upon only if there are no other goods available.

The statutory exception is provided by the Law of Distress Amendment Act 1908. This provides that where a landlord or his bailiff levies distress on the goods of an under tenant, lodger or any other party not being the tenant, then such third party can, under section 1 of the said Act, serve upon the landlord or his agent a declaration in writing claiming that the goods so distrained are protected.

The declaration must be in the prescribed form and must be served prior to the date of the auction. Failure to do this will result in the third party losing the protection of the Act.
In addition, by Selection 4 certain categories of goods are specifically excluded from protection. From a practical point of view the most important of these are:

1. Gloods belonging to the husband, wife or partner of the tenant.   

2. Goods in the possession in any bill of sale or hire purchase agreement [except those which are subject to a default notice served under the Consumer Credit Act 1974]   

3. Goods in possession, order or disposition of the tenant with the permission of the true owner.

Finally, we would like to deal briefly with the effect of actions by third parties, which will show the advantages of using distress as opposed to other methods of recovery. 

If a Sheriff's officer has already levied execution on behalf of a trade creditor, the Bailiff acting for the landlord, can provide him with notice of the arrears of rent and the Sheriff must then first satisfy the arrears [up to a one year period] prior to the sale, or out of the proceeds of sale. This is provided be Section 1 of the landlord and Tenants Act 1709. In the event of there being insufficient goods of value to cover both the arrears and the amount of the execution, the Sheriffs officer will inform the creditors that they must pay the arrears or, alternatively, withdraw their action, thus allowing the distress to proceed.

The rights of a landlord to distrain are not affected by the appointment of a receiver.

If the tenant is adjudicated bankrupt the landlord can still distrain for six months rent accrued prior to the adjudication.

A landlord can distrain in a voluntary winding up but not where a tenant company is being compulsorily wound-up by the Court.

Where the Inland Revenue or Customs and Excise have made a prior levy but not effected removal of the goods, the landlord will also find himself in a strong position of he later levies distress. This is because the landlord is the owner of the premises and can, for example, refuse a sale on site in the instance of heavy machinery in a factory. In addition, it is often the case that both the Inland Revenue and the Customs and Excise enter into long term arrangements, in which event the landlord can legally challenge that their prior C.R.A.R. had lapsed leaving him clear to proceed.

Should you wish to discuss this matter, or require further information, please do not hesitate to contact us on our direct line: 0208 688 9899. We look forward to being of service to your organisation in the future should you require our services.