The Law Commission - (LAW COM. No. 194) LANDLORD AND TENANT DISTRESS FOR RENT Laid before Parliament by the Lord High Chancellor pursuant to section 3(2) of the Law Commissions Act I965 Ordered by The House of Commons to be printed 4 February 1991 LONDON: HMSO E9.65 net HC 138 The Law Commission was set up by section 1 of the Law Commissions Act 1965 for the purpose of promoting the reform of the law. The Commissioners are- The Honourable Mr Justice Peter Gibson, Chairman Mr Trevor M. Aldridge Mr Jack Beatson Mr Richard Buxton, Q.C. Professor Brenda Hoggett, Q.C. The Secretary of the Law Commission is Mr Michael Collon and its offices are at Conquest House, 37-38 John Street, Theobalds Road, London WClN 2BQ. .. 11 DISTRESS FOR RENT CONTENTS Paragraph Page PART I: INTRODUCTION Background 1.3 1 Scope of this report 1.6 2 The consultation 1.11 3 Structure of the report 1.14 4 PART 11: THE- PRESENT LAW Introduction 2.1 5 Main points of the law 2.2 5 (a) Rent 2.3 5 (b) The levy of distress 2.4 5 (c) The goods which may be taken 2.7 6 (d) The sale 2.8 6 (e) The remedies 2.10 7 (i) The tenant's remedies 2.10 7 (ii) Remedies of the third party 2.13 7 (iii) The landlord's remedies 2.14 7 The major criticisms of the law 2.17 8 PART 111: THE CASE FOR REFORM Introduction 3.1 10 Characteristics of distress 3.5 10 (a) Priority given to landlords over other creditors 3.5 10 (b) Prejudice to third parties 3.9 11 (c) Harshness 3.10 11 (i) Lack of opportunity to challenge 3.12 12 (ii) Scope for the rules of distress to be abused 3.13 12 (iii) Intrusiveness 3.15 12 (iv) Sale of the goods at an undervalue 3.16 13 (d) Debt enforcement 3.18 13 Should there be exceptions from the abolition of distress for rent? 3.21 14 The situation in other common law jurisdictions 3.29 15 PART IV IMPLEMENTATION OF REFORM Introduction 4.1 17 Should all forms of distress for rent be abolished? 4.2 17 (a) Other payments 4.5 17 (b) Indemnities for non-payment of rent 4.6 17 Contracting out 4.8 17 ... 111 Paragraph Page Commencement 4.10 18 Transitional provisions 4.11 19 Crown application 4.15 19 Consequential amendments 4.16 19 PART V THE EFFECT OF ABOLITION Introduction 5.1 21 The programme of improvement to the court system 5.2 21 The effects of abolition 5.7 23 (a) The landlord's other remedies 5.7 23 (b) The court system 5.11 23 (c) Precautionary measures against rent default 5.16 25 (d) The property market 5.19 25 Improvements to existing remedies and practice 5.21 26 (a) Arrears at date of judgment 5.25 26 (b) Future payment orders 5.29 27 (c) Interest 5.33 28 (d) Rent deposits 5.36 29 The effect of abolition in other common law jurisdictions 5.40 30 Conclusion 5.42 30 PART VI: SUMMARY OF RECOMMENDATIONS 32 APPENDIX A: Draft Law of Property (Distress) Bill with Explanatory Notes 33 APPENDIX B: Draft Clause with Explanatory Notes 42 APPENDIX C: List of individuals and organisations who submitted comments on Working Paper No. 97 44 APPENDIX D: Part I1 of Working Paper No. 97 50 iv THE LAW COMMISSION Item 3 of the Fourth Programme: The Law of Landlord and Tenant DISTRESS FOR RENT To the Right Honourable the Lord Mackay of Clashfern, Lord High Chancellor of Great Britain PART I INTRODUCTION 1.1 Distress for rent is one of the means by which a landlord can recover rent arrears. It is an ancient remedy’ which generally gives the landlord a right as soon as rent is overdue to enter the tenanted property and to seize and hold goods found there, irrespective of who owns them, until the rent is paid. Since 16892 the landlord has also been entitled to sell the goods to recoup the rent due. Distress is almost always available to the landlord of premises when rent is in arrears as it is an automatic right arising from the obligation to pay rent. 1.2 Any short description of distress for rent is bound to be deceptively simple because the landlord who chooses to use the remedy has to comply with a complex and sometimes anachronistic set of rules3 developed over the centuries in a haphazard fashion to meet contemporary demands. Its use is on the whole not subject to prior judicial contr01.~ Background 1.3 The Commission first considered distress for rent in 19665 under Item VI11 of its First Programme. It found that at that time the use of distress for rent was extremely limited and that this supported a case for the immediate abolition of distress, but it took the view that the real demand was for a general review of the remedies for non- payment of rent and the provision of an effective machinery for debt collection. The Commission considered that pending such review distress should be retained, but that the county court’s prior leave should be required before levy in the case of all residential lettings. That leave should entitle the landlord to distrain not only for arrears outstanding at the date of his application but also for further arrears6 accrued between that date and the date of the order. The recommendations have not been implemented. 1.4 Debt enforcement machinery was at that time under consideration by the Payne Committee, which subsequently made proposal^,^ including the abolition of distress, as part of a package of proposals on debt enforcement.s None of the relevant proposals was implemented and there has been no significant change in the law relating to distress for rent.g After a lapse of some 15 years following the publication of the Payne Report, we decided to return to the subject. 1.5 In May 1986, we published a working paperlo expressing the provisional view * “From whencesoever the name or. the notion came, the remedy obtained so early in our law, that we have no memorial of its original with us;”: Gilbert The Law and Practice of Distresses and Replevin (3rd ed., 1794), p.2. Distress for Rent Act 1689. s. 1. See Part I1 below and Appendix D. See Part 11, para. 2.5 below and Appendix D, paras. 2.28-2.29. Interim Report on Distress for Rent (1966), Law Com. No. 5. Ibid., para. 26. Report of the Committee on the Enforcement of Judgment Debts (1 969), Cmnd. 3909. Ibid., Summary of Main Conclusions, paras. 38-45, especially para. 41(1). The Distress for Rent Rules 1988 (S.I. 1988, No. 2050) made under the Law of Distress Amendment Act 1888, s.8 and the Law of Distress Amendment Act 1895, s.3 made limited changes including the imposition of further restrictions on the issue of certificates to bailiffs and the introduction of a procedure for complaints about bailiffs’ conduct. The Courts and Legal Services Act 1990, s. 15(2) widens the range of goods which are absolutely privileged from distress: see Part 111, n. 21 below. lo Distress for Rent (1986), Working Paper No. 97. 1 that distress for rent should be abolished, while also seeking views as to how, in the alternative, it might be reformed. The five options put forward in the Paper” were: (a) the restatement of the existing law in a single, modern statute; (b) amendment and reform of the main areas of concern only; (c) fundamental reform of the remedy as a whole; (d) partial abolition (i.e. in relation to residential or agricultural tenancies, or in relation only to private sector letting); (e) complete abolition. Scope of this report 1.6 In this report we consider the case for and against abolition of distress for rent and conclude that it should be abolished. We also consider what alternative methods of dealing with the recovery of rent arrears would be available to the landlord in the event of abolition and whether any new legislation would be required to improve the existing alternatives or to create a new remedy. We suggest that implementation of our recommendation should await the improvements to the court system now being introduced to make fully effective the alternative remedies for recovery of rent. 1.7 The scope of this report is confined to the landlord‘s right to distrain for arrears of rent and other related payments.12 It does not examine other forms of distress which are available outside the landlord and tenant relationship, such as the right to distrain for payment of the community charge, the non-domestic rate, income tax and corporation tax, value added tax and fines. They are expressly authorised by statute13 for specified purposes, in cases where public authorities are charged with enforcing particular payments. 1.8 Further, the report does not extend to studying other extra-judicial remedies. One of them which is in many ways akin to the power of the landlord to distrain is the power of a mortgagee under a floating charge14 to execute on goods of a company m0rtgag0r.l~The charge gives the mortgagee the opportunity to seize the debtor’s goods which are subject to his charge to satisfy the debt without prior judicial intervention. The mortgagee’s powers extend to goods which happen to be subject to the charge when it crystallises; they may not have been acquired by the debtor or even in existence when the charge was created.