This part deals with residential property that is rented by a bankrupt as his/her family home and is excluded from the bankrupt’s estate by the Insolvency Act 1986 [note 1] (see paragraph 30.95). This exclusion was inserted by the Housing Act 1988 [note 2]. The chapter also provides information on certain tenancy agreements that are not exempt but that are unlikely to be of any realisable value (see paragraph 30.64). In the normal course of events, when a bankrupt is living in rented accommodation, he/she will usually do so under an assured shorthold tenancy. This type of tenancy will hold no value and will not form part of the bankrupt’s estate.
Guidance on other property related matters can be found in the following chapters;
Chapter 31.11 - Solely owned tenanted property.
Chapter 31.12 – Jointly owned tenanted property.
Chapter 31.3 – Dealing with the insolvent’s freehold or leasehold property.
A tenancy is a type of lease, generally granted for a short fixed term (or a periodic letting – see paragraph 30.63) and the obligations to repair and maintain generally remain with the landlord. The main difference between the usual type of lease encountered by the official receiver and a tenancy is that a lease is usually for a longer fixed period and the obligations to repair and maintain generally pass to the lessee. They both involve granting a period of property rights ownership, i.e. the tenant or lessee has an interest in the land and exclusive possession of the property for the specific period.
In addition to the obligation to pay rent, a lease may have been purchased by the payment of a one-off premium; this will not be the case with a typical tenancy agreement. Unless specified, a lease will often allow the lessee to assign the lease (sell on the lease), whereas a tenancy will not be capable of assignment by the tenant.
30.63 Types of tenancy agreement
There are the 4 main types of residential tenancies used by private and local authority landlords. Any of these tenancies can be either a fixed term tenancy (for an agreed set period e.g. 6 months), or a periodic tenancy (for an indefinite rolling period e.g. monthly or weekly):
These tenancies are excluded from the bankrupt’s estate, see paragraph 30.95.
Local authorities most commonly use secure tenancies (see paragraph 30.85). Housing associations, housing action trusts, and registered providers of social housing most commonly use assured shorthold tenancies (see paragraph 30.83). In addition, there are three types of tenancies used exclusively by these categories of landlords:
These tenancies are not excluded from the bankrupt’s estate – see paragraph 30.95.
Common law tenancies fall outside the scope of the Housing Acts 1985, 1988 and 1996. Such tenancies will be rarely encountered by the official receiver. In the case of a common law residential tenancy, the tenant's rights and obligations are mainly dependent on the terms agreed between the parties (written into the agreement) and therefore they are contractual or "non-statutory contractual tenancies" as opposed to those being regulated by statute.
Common law tenancies do not afford tenants the same protection regarding security of tenure and statutory continuation as assured tenancies do (including assured shorthold tenancies).
Any residential tenancy which is excluded from being an assured tenancy by the Housing Act 1988, is a common law tenancy (see paragraph 30.70).
30.66 Protected tenancy -also known as a Rent Act tenancy
A protected tenancy is a tenancy agreement that is governed by the Rent Act 1977. This was the standard type of tenancy entered into prior to 15 January 1989. The protected tenancy was very favourable to tenants. The tenant has considerable security of tenure (it is very hard to evict him/her) and the level of rent paid is regulated [note 3]. The Housing Act 1988 discontinued protected tenancies, but existing protected tenancies continue to be legislated by the 1977 Act.
A protected tenancy is excluded from the bankrupt’s estate – see paragraph 30.95.
Assured tenancies were introduced by the Housing Act 1988, and apply where a property was let to an individual as their home after 15 January 1989 but before 28 February 1997 [note 4]. These agreements give the tenant security of tenure, but the rent chargeable under these tenancies is permitted to be a market rent. Since 28 February 1997, notice must be given at the start of the tenancy to create an assured tenancy, or it defaults to an assured shorthold tenancy. It is difficult to evict a tenant with an assured tenancy, but it can be done on certain grounds as laid down in the legislation, e.g. if a tenant falls behind in rent payments for more than 2 months the landlord can apply to the court for a possession order.
An assured tenancy is excluded from the bankrupt’s estate – see paragraph 30.95.
A tenancy under which a dwelling house is let as a separate dwelling is an assured tenancy if and so long as:
(1) the tenant or, as the case may be, each of the joint tenants is an individual; and
(2) the tenant or, as the case may be, at least one of the joint tenants occupies the dwelling house as his/her only or principal home; and
(3) the tenancy is not one which cannot be an assured tenancy (see paragraph 30.71).
Therefore the bankrupt (if solely owned), or the bankrupt or joint owner (if jointly owned) must occupy the property as his/her only or principal home at the date of the bankruptcy order for the lease to qualify as an assured tenancy.
Assured tenancies are excluded from a bankrupt’s estate [note 5].
Where a bankrupt’s interest in an assured tenancy has equity, the value of this equity will be lost to the bankrupt’s estate unless it is claimed by the official receiver as trustee (see paragraph 30.77a-79). Before claiming the assured tenancy for the benefit of the bankrupt’s estate the official receiver, as trustee, will need to carry out an assessment of the lease to verify that if is an assured tenancy (see paragraph 30.71).
Assured tenancies are excluded from a bankrupt’s estate, see paragraph 30.69. Where a shared ownership property has equity, the value of this equity will be lost to the bankrupt’s estate unless it is claimed by the official receiver as trustee see paragraph 30.68. Guidance on property held by a bankrupt under a shared ownership leases is provided in Chapter 31.3 Part 12.
Before claiming the assured tenancy for the benefit of the bankrupt’s estate [note 7] the official receiver, as trustee, will need to carry out an assessment of the assured tenancy. The official receiver will need to consider the terms of the tenancy agreement to establish whether or not the tenancy is an assured tenancy by considering if any of the exclusions listed in Housing Act 1988 schedule 1 apply (see paragraph 30.72-77).
Any tenancy created prior to 15 January 1989 cannot be an assured tenancy [note 8].
A tenancy entered into on or after 1 April 1990 (otherwise than in pursuance of a contract made before 1 April 1990) where the rent is greater than £100,000 cannot be an assured tenancy [note 9].
The rent payable does not usually include amounts payable for council tax, services, management, repairs or insurance [note 10].
A tenancy entered into before 1 April 1990 (or on or after that date in pursuance of a contract made before that date), where the dwelling house had a rateable value on 31 March 1990 of in excess of £1,500 in Greater London and £750 elsewhere cannot be an assured tenancy [note 11].
In the unlikely event the official receiver encounters a lease where this exclusion may apply, a historic rateable valuation of the property as at 31 March 1990 can be obtained by contacting the Valuation Office Agency - www.voa.gov.uk
The following tenancies cannot be assured tenancies;
(1) a tenancy under which for the time being no rent is payable [note 12].
(2) a tenancy which is entered into on or after 1 April 1990 (otherwise than, in pursuance of a contract made before 1 April 1990) and under which the rent payable for the time being is payable at a rate of £1,000 or less a year, if the dwelling house is in Greater London, and £250 or less a year, if it is elsewhere [note 13].
It is possible that if the tenancy relates to a shared ownership property and the bankrupt has exercised his/her stair casing rights the rent might have become a low rent (see paragraph 31.3.331).
The following tenancies cannot be assured tenancies:
A tenancy -
1) which was entered into before 1 April 1990 or, where the dwelling house had a rateable value of 31 March 1990, on or after 1 April 1990 in pursuance of a contract made before that date, and
2) under which the rent for the time being payable is less that two-thirds of the rateable value of the dwelling house on 31 March 1990 [note 14].
In the unlikely event the official receiver encounters a lease where this exclusion may apply, a historic rateable valuation of the property as at 31 March 1990 can be obtained by contacting the Valuation Office Agency - www.voa.gov.uk
The following also cannot be assured tenancies;
Before claiming the bankrupt’s interest in an excluded tenancy, consideration should be given to the value of the interest to be claimed. Where the bankrupt’s interest in the tenancy is less that £1000 (the amount on which the official receiver can obtain a charging order – see chapter 31.3 Part 8) it will have no value to the bankrupt’s estate and therefore should not be claimed. Where the value is greater that £1000 consideration should be given to claiming the bankrupt’s interest in the tenancy for the benefit of the estate.
To claim an assured tenancy to vest in the trustee as part of the bankrupt’s estate the official receiver, as trustee, should serve written notice [note 27] on the bankrupt with a request for acknowledgement. The notice is normally served by both recorded delivery and ordinary 1st class post but it may be served by electronic means if the bankrupt has consented to electronic communication and provided an electronic address for delivery [note 28 and note 29]. If the official receiver is in any doubt about whether the electronic address provided is still being used by the bankrupt, service by post should also be used.
The official receiver in his/her capacity as trustee must make the claim against the property in question by notice in writing within 42 days of becoming aware of the property or, where the official receiver is trustee, within 42 days of becoming trustee if already aware of the existence of the property prior to becoming trustee [note 30]. Note that the time limit, set by the Act, can be extended on application to the court [note 31] (see paragraph 30.80).
The 42 day period for claiming the assured tenancy may be extended by the court [note 32]. The court has viewed that the 42 day period is a substantive provision, rather than a procedural time limit [note 33] and, therefore, in order to agree to an extension, it will need to be persuaded that there has been “good cause” for the delay. A simple administrative oversight is unlikely to be viewed as “good cause” by the court. Generally there is no merit in making such applications as they are invariably unsuccessful and if the application is met by resistance it may attract adverse costs.
Where a failure on the part the bankrupt has, in some way, been a cause of the trustee’s failure to serve the notice in time, the court may allow the service of the notice out of time [note 34].
Once the notice referred to in paragraph 30.78 has been served on the bankrupt, the assured tenancy (solely owned) or the bankrupt’s interest in the tenancy (jointly owned) vests in the trustee as part of the bankruptcy estate, and the trustee’s title to the property has relation back to the date of the bankruptcy order [note 7]. Once the property has vested, the official receiver should take such action as is necessary to protect and realise the property including, where appropriate, the issue of letters to third parties such as the mortgage company. Where appropriate, the official receiver should seek to insure the property (see paragraph 31.3.58).
Essentially, once the assured tenancy forms part of the estate, the official receiver should deal with it as he/she would with any other family home forming part of the estate. From this point in the process, there are no special procedures for dealing with the asset, and the information and guidance given chapter 31.3 should be followed.
Where the trustee claims an assured tenancy that is subsequently considered to be onerous, he/she will not be able to disclaim the property without permission of the court [note 35].
The application for permission to disclaim may be made without notice to any other party, and must be accompanied by a report giving details of the property, setting out the reasons why the property, having been claimed for the estate, is now to be considered for disclaimer and specifying the persons (if any) who have been informed of the trustee’s intention to make the application. If the report states any person has consented to the disclaimer then the consent must be annexed to the report [note 36]. It is presumed that the consent of the housing association, which may be obtained in advance of the hearing, will be persuasive to the court
For further information on disclaimers generally see Chapter 34.
This is the standard type of residential tenancy for both private landlords and housing associations and was introduced by the Housing Act 1988. The Housing Act 1996 amended this act so that all new tenancies entered into since 28 February 1997 are automatically assured shorthold tenancies, unless the agreement has specified it to be an assured tenancy (see paragraph 30.67). Shorthold tenancies granted after 15 January 1989 and before 28 February 1997 are only enforceable by the landlord if the correct notice was served at the start [note 37]. Under these agreements, the landlord cannot recover possession until six months from the start of the tenancy, but after that date, the landlord can recover possession even if the tenant has not breached the terms of the agreement. Possession can be gained fairly easily with two months notice [note 38]. Rent reviews can also take place after the initial period.
An assured shorthold tenancy in the name of a bankrupt as tenant is excluded from the bankrupt’s estate – see paragraph 30.95.
All residential tenancies created since 28 February 1997 are assured shorthold tenancies unless the landlord gave specific notice that it is an assured tenancy [note 39] (see paragraph 30.65). There are certain exclusions to this [note 40] but these mainly relate to when notice is served, the continuation of previous secure or assured tenancies, council tenancies, and assured agricultural occupancies.
If a bankrupt is the tenant of a residential tenancy agreement that was entered into verbally since 28 February 1997, it is by default an assured shorthold tenancy.
Secure tenancies are agreements created by public bodies such as local authorities under the Housing Act 1985. Housing associations and housing co-operatives used these agreements until 15 January 1989, but have since used assured and assured shorthold tenancies [note 41], but they are still the most commonly used type of tenancy for local authorities. When a tenancy is granted to a new council tenant, it may initially be on an introductory basis, later becoming a secure tenancy if there are no problems with the tenant (see paragraph 30.86).
Secure tenancies provide the tenant with similar rights of occupation as an assured tenancy. To gain possession, the landlord must prove one or more of the statutory grounds for possession. Under the secure tenancy agreement there may also be a tenant’s right to buy the property concerned (see paragraph 30.98k).
A secure tenancy in the name of the bankrupt is excluded from the bankrupt’s estate – see paragraph 30.95.
Introductory tenancies were introduced by the Housing Act 1996 [note 42] and are available only to local authorities or a housing action trust. Introductory tenancies usually last for 12 months and provide the landlord with the facility to give tenants a trial period, and if there are any problems with the tenant, possession can easily be gained by court order. These tenancies are also known as a starter/probationary tenancy.
The tenancy will remain an introductory one until the expiry of the introductory period, although it may be extended by a further six months [note 43]. Following satisfactory conduct by the tenant, on expiry of the introductory tenancy it will automatically mature into a secure tenancy see paragraph 30.66.
Introductory tenancies in the name of the bankrupt are not included in the tenancies excluded from the bankrupt’s estate [note 44]. It is therefore likely that such tenancies vest in the official receiver as trustee of the bankrupt’s estate - see paragraph 30.96.
Demoted tenancies were introduced in June 2004 by the Anti-Social Behaviour Act 2003 [note 45] and enable a local authority or housing trust to deal more effectively with anti-social behaviour. Under such a tenancy it is much easier for a landlord to evict a tenant than one who has a full secure tenancy. Landlords are entitled to apply to court for an order demoting an otherwise secure or assured tenancy; and then, during this demoted period (usually one year), the landlord may seek possession of the property by following the appropriate statutory procedure where the tenant continues to breach certain conditions. Where no possession order is sought within the period of demotion, the tenancy reverts back to the original tenancy.
Demoted tenancies in the name of the bankrupt are not included in the tenancies excluded from the bankrupt’s estate [note 44]. It is therefore likely that such tenancies vest in the official receiver as trustee of the bankrupt’s estate - see paragraph 30.96.
Although not a true legal classification; the phrase ‘non-secure tenancy’ is often used to refer to a tenancy which would otherwise be secure, (i.e. the landlord and tenant conditions are satisfied), but which falls within one of the statutory exceptions [note 47]. Such tenancies mean a landlord can gain possession with relative ease as no statutory grounds for repossession are required. Examples of a non-secure tenancy include when a local authority provides temporary housing to a homeless person or an asylum seeker [note 48]. A landlord may gain possession of a non-secure tenancy with relative ease by serving a notice to quit and gaining an order for possession. He/she is not required to prove any statutory grounds for possession.
Non secure tenancies in the bankrupt’s name are not included in the tenancies excluded from the bankrupt’s estate [note 44]. It is therefore likely that such tenancies vest in the official receiver as trustee of the bankrupt’s estate - see paragraph 30.96.
Family intervention tenancies came into force on 1 January 2009 [note 49] and are a form of residential tenancy without security of tenure. Their creation aims to help local councils and housing associations to work with families who have been involved in antisocial behavior. These tenancies normally last between 6 months and 1 year.
Family intervention tenancies are not secure or assured tenancies as they are excluded from being so by the legislation [note 50 and note 51]. The tenancy can be converted into secure/assured tenancy on the relevant notice by the landlord to the tenant.
Family intervention tenancies in the name of the bankrupt are not included in the tenancies excluded from the bankrupt’s estate [note 5]. It is therefore likely that such tenancies vest in the official receiver as trustee of the bankrupt’s estate - see paragraph 30.96.
A statutory periodic tenancy is a tenancy that is created when any of the main four types of tenancies referred to in paragraphs 30.63 come to an end [note 52]. A periodic tenancy is created by agreement; a statutory one is created automatically. The tenancy will generally continue on the same terms as the former tenancy, and for the period of which the rent is normally payable [note 53]. For example, if an assured shorthold tenancy comes to an end on 30 May, and the rent was normally payable monthly, if the tenant is allowed to continue living in the property without a new tenancy agreement, it will automatically become a statutory periodic assured shorthold tenancy automatically renewing on 30 June and monthly thereafter [note 54].
A residential tenancy can be created by the conduct of the parties, there does not need to be a written agreement for it to be legally binding. Once a person is given possession of land or property, usually evidenced by possession of the keys, and the owner accepts rent payments, a tenancy comes into existence legally. By default such tenancies are assured shorthold tenancies (see paragraph 30.83).
A licence is not a type of tenancy agreement but is a contractual right to occupy space for a period of time. A licence does not give the tenant any legal interest in the land; it is simply the permission to occupy the land for an agreed term and will usually come about when there is no right to exclusive possession. When someone lets a room in their house out to a lodger, this is under licence rather than a tenancy. The main difference between a tenancy and a licence is that as a tenancy gives the tenant an interest in the land, that interest is binding on any subsequent purchaser of the property. With a licence, if the landlord sells the property, then the tenant no longer has any right to occupy, as his/her agreement was with the landlord, and not attached to the land [note 55]. Licence agreements do not generally vest in the official receiver as trustee as they are personal rights granted by the licensor to the bankrupt, and are not binding on any mortgagee or purchaser. See also paragraphs 31.11.19 and 31.12.58-59.
The general rule as to whether an arrangement is a lease or a licence is whether the occupier has a right of exclusive occupation, that is, whether he or she can keep other people (including the landlord) out of defined premises.
If the parties do not intend to enter into legal relations at all, no tenancy can be created. The circumstances which negate any intention to create a tenancy include a family arrangement or an act of friendship or generosity. It has been held that a father allowing his son to occupy his house on payment of the father's building society loan is a licence and not a tenancy agreement [note 56]
The following types of tenancies are excluded from a bankrupt’s estate:
(a) a tenancy which is an assured tenancy or an assured agricultural occupancy, within the meaning of Part I of the Housing Act 1986, and the terms of which inhibit an assignment as mentioned in section 127(5) of the Rent Act 1977 [note 57], see paragraphs ??
(b) a protected tenancy, within the meaning of the Rent Act 1977, in respect of which, by virtue of any provision of Part IX of that Act, no premium can lawfully be required as a condition of assignment [note 58],
(c) a tenancy of a dwelling-house by virtue of which the bankrupt is, within the meaning of the Rent (Agriculture) Act 1976, a protected occupier of the dwelling-house, and the terms of which inhibit an assignment as mentioned in section 127(5) of the Rent Act 1977 [note 59],
(d) a secure tenancy, within the meaning of Part IV of the Housing Act 1985, which is not capable of being assigned, except in the cases mentioned in section 91(3) of that Act [note 60]
This means all assured tenancies (which includes assured shorthold tenancies), protected tenancies, protected occupancies of dwelling-houses, and secure tenancies are excluded from the bankruptcy estate and will not vest in the official receiver as trustee.
In practice many council, housing association and private landlord tenancies in respect of dwelling houses will fall under one of the categories listed above.
It would appear that insolvency law may not have kept pace with housing law and that there are other types of tenancy that have been introduced since the Housing Act 1988 that are unlikely to be sold for value but that are not currently excluded from a bankrupt’s estate [note 5]. Such tenancies are granted by a local authority or a housing action trust and include a introductory tenancy (paragraph 30.86) a demoted tenancy (paragraph 30.88) a non secure tenancy (paragraph 30.89) and a family intervention tenancies (paragraph 30.90). These tenancies will vest in the official receiver as trustee of the bankrupt’s estate (see paragraph 30.97).
Policy Unit are currently liaising with the Department of Communities and Local Government in relation to these tenancies with a view to possible future legislative amendment to bring them into line with other local authority and housing action trust tenancies.
When the official receiver encounters a tenancy granted by either a local authority, housing association, registered provider of social housing or housing action trust, and it is not excluded from the bankrupt’s estate (see paragraph 30.70), then it will form part of the bankrupt’s estate and will vest in the official receiver as trustee. This will include the tenancies referred to in paragraph 30.96 above.
As these tenancies are not excluded, are likely to have no value and may place obligations on the official receiver as trustee (e.g. to pay rent) they should be disclaimed. See Chapter 34 for guidance on issuing a disclaimer.
The official receiver has the statutory power to claim excluded tenancies for the benefit of the estate [note 61]. The official receiver must serve notice in writing on the bankrupt within 42 days of becoming aware of the tenancy or, within 42 days of becoming trustee if he/she was already aware of the existence of the tenancy prior to becoming trustee [note 62]. This is most likely to occur in respect of assured tenancies and detail of how to claim a tenancy for the benefit of the bankrupt’s estate is provided in see paragraph 30.78-79.
Business tenancies in the name of a bankrupt are not excluded from the bankrupt’s estate [note 5] and will vest in the official receiver as trustee of the bankrupt’s estate.
A business tenancy is where the property comprised in the tenancy is or includes premises for the purposes of a business. ‘A business includes a trade, profession or employment and includes any activity carried on by a body of persons, whether corporate or unincorporated’. The tenancy does not need to be in the name of a business to be a business tenancy; the important factor is the purpose that the property is let for [note 63].
The Landlord and Tenant Act 1954 Part II governs business tenancies. Business tenants generally have some rights to acquire a new tenancy on the expiration of a current tenancy agreement [note 64]. This may result in that tenancy having a value to the estate. Tenancies that are not exempt should be treated like leases, and reference should be made to Chapter 31.3.
A continuation tenancy occurs when a tenant remains in occupation after the expiration of a long tenancy at low rent under the Landlord and Tenant Act 1954 (a lease) [note 65]. Following case law, continuation tenancies are considered to be property, and are deemed to fall into the estate. In a court of appeal case, the tenancy in question was a forty year lease under the Landlord and Tenant Act 1954 which had expired the year prior to the bankruptcy. The judge on appeal decided that the bankrupt had rights of occupation rather than rights under the former contractual lease, which came from legislation, therefore the tenant became entitled to protection under the Rent Acts rather than to a new tenancy[note 66]. Continuation tenancies under this Act will vest in the trustee and should be treated like leases, reference should be made to Chapter 31.3.
On the making of a bankruptcy order rent arrears are a bankruptcy debt insofar as the money owed is a debt to which the bankrupt is subject at the commencement of the bankruptcy [note 67], irrespective of whether the tenancy is an excluded tenancy (see paragraph 30.95). The landlord is a creditor in the proceedings with a provable debt for the amount owing up until the date of the bankruptcy order. Furthermore, the landlord has no remedy against the property or person in respect of that debt except with leave of the court or by a landlord’s usual right of distraint, see Chapter 9, paragraphs 9.6 to 9.8 [note 68].
As the tenancy agreements listed in paragraph 30.95 do not form part of the estate, the bankruptcy does not affect the running of the tenancy, and the bankrupt has an ongoing obligation to pay future rents under the agreement. The arrears of rent and any service charges that exist at the date of the bankruptcy order are a provable debt and so are not payable by the bankrupt (however, see paragraph 30.98e below for why a bankrupt may wish to pay rent arrears).
Even though the rent arrears are a provable debt in bankruptcy there are instances when a bankrupt may wish to pay these arrears to avoid eviction from the property by the landlord. It is not possible for a landlord to gain possession of a property against the tenant’s will without an order of the court. The courts have decided that a landlord still has the right to apply for an order of possession against a bankrupt tenant with rent arrears, and such an order can be sought before or after the making of a bankruptcy order [note 69]. The judge found that seeking a possession order was not seeking to enforce a remedy against the property of the bankrupt, but operated so as to determine the tenant’s interest in the property. The landlord’s ability to seek a possession order is not affected by, or connected to, the bankrupt’s discharge, although as the bankrupt will be released from the rent arrears on discharge, the landlord will not be able to apply for a possession order after the bankrupt has been discharged.
Should a bankrupt wish to avoid enforcement of a possession order, he/she must fulfil the conditions of the suspended order and pay the instalments ordered by the court. If a bankrupt wishes to make such payments to avoid losing his/her home, the official receiver should not object. When assessing the bankrupt’s income and expenditure for IPA/IPO purposes, the official receiver or trustee should allow a sum ordered by court towards the repayment of rent arrears as a reasonable expense. See paragraph 40.64. See Chapter 31.7, pragraph 31.7.31.
Where a bankrupt has reached a voluntary agreement with the landlord to pay rent arrears following the landlord threatening to take possession proceedings, then the official receiver, as trustee, should not intervene in those payments. If the official receiver considers the payments to be excessive, and if they are likely to compromise the bankrupt’s ability to make a payment under an IPA/IPO, the official receiver should ask the bankrupt to vary the agreement with the landlord.
Where a bankrupt is living in rented accommodation, it is likely that he/she will have paid a security deposit. This is most likely being held by the landlord or agent. Where the tenancy agreement has been entered into after 6 April 2007, the deposit must be held in a separate Tenancy Deposit Scheme if it is an assured shorthold tenancy agreement [note 70]. For information on this scheme see www.depositprotection.com. Alternatively, from 6 April 2007, a landlord may retain a deposit, but must take out an insurance policy to provide security to the tenant in respect of that deposit.
A trustee should not attempt to claim a rental deposit whilst the bankrupt is still residing in the property as it may cause the bankrupt undue hardship to find funds to replace the deposit. If the landlord or agent holding the deposit is a creditor in the proceedings, he/she may claim a lien (see Chapter 9 Part 5 - Action against the property of the insolvent.) If the holder is not a creditor, then he/she has no right to the monies and the monies should be recovered without difficulty at the end of the tenancy if appropriate. The official receiver should not claim the monies where this will prevent the bankrupt from obtain further accommodation. It is likely a further deposit will be needed if a further tenancy is to be taken on, and the monies should only be claimed in exceptional circumstances, for example if a bankrupt is moving back to reside with his/her parents and does not require the deposit.
Where a trustee has been appointed in a bankruptcy, any landlord or agent who holds any property to the account of, or for, the bankrupt has to pay or deliver to the trustee all the property in his/her possession or under his/her control which forms part of the bankrupt's estate and which he/she is not by law entitled to retain as against the bankrupt or trustee [note 71].
As a landlord can distrain against the bankrupt’s assets for unpaid rent, and any unpaid service charges, if the official receiver believes any of the bankrupt’s assets hold a value to the estate, action should be taken quickly to protect those assets from such action. This is most likely to mean removing them from the premises. See paragraph 9.6 to 9.8 for more information on a landlord’s right to distrain.
A “right to buy” is a right acquired by a secure (public sector) tenant (see paragraph 30.66) after satisfying a residency qualification to purchase the freehold or acquire a lease to the dwelling house at a discounted price [note 72]. The tenant or one of the joint tenants must have been resident in the public sector accommodation for at least 5 years. Prior to 18 January 2005, this period was 2 years [note 73]. There are certain exceptions that preclude a tenant from exercising a “right to buy”, for instance, following an order suspending the right because of anti-social behaviour (see paragraph 30.88), if the landlord is a charity, if the tenant is an undischarged bankrupt or if the property is let in connection with employment [note 74 and 75].
Where the secure tenancy is a joint tenancy then, whether or not each of the joint tenants occupies the dwelling house as his/her only or principal home, the right to buy belongs jointly to all of the tenants or to such one or more of them as may be agreed between them. Any such agreement is only valid if the person or at least one of the persons to whom the right to buy is to belong occupies the dwelling house as his/her only or principal home [note 76].
A housing association or housing co-operative tenant with a tenancy that began after 15 January 1989 will have an assured tenancy rather than a secured tenancy agreement. These types of agreement do not contain a right to buy option. Only housing association tenancies entered prior to this date will be secured tenancies with a right to buy option.
The right to buy cannot be exercised if the person, or one of the persons, to whom the right to buy belongs has a bankruptcy petition pending against them, or is an undischarged bankrupt [note 77].
The right to buy cannot be exercised by the trustee in bankruptcy, as the right is personal to the bankrupt (and/or any joint tenant), so does not vest in the trustee. The trustee would not be able to fulfil the residency qualification, which is also personal to the bankrupt (see paragraph 30.98k). Moreover, a secure tenancy, with limited exception is excluded from the estate by virtue of the Insolvency Act 1986 (see paragraph 30.95).
If the bankrupt has already exercised a right to buy a public sector property prior to the bankruptcy order being made, then the bankrupt’s beneficial interest in that property (if jointly owned), or the freehold or leasehold (if solely owned) will vest in the trustee on his/her appointment. Reference should be made to Chapter 31.3 on how to deal with an interest in such a dwelling-house.
If the bankrupt exercises a right to buy whilst undischarged from bankruptcy (despite being precluded from doing so – see paragraph 30.98o), then it might give rise to an asset, which could be claimed as after acquired property (see Chapter 31.8). Any claim to an after acquired asset needs to be made within 42 days of becoming aware of that asset [note 78]. Reference should be made to Chapter 31.3 on how to deal with an interest in a dwelling-house if the bankrupt has acquired an interest in a former public sector property.
The discount available to secure tenants exercising their right to buy is linked to the number of years they have been resident. For a house this is calculated as a minimum of 35% plus 1% for every complete year exceeding the 5 year qualifying period, up to a maximum of 60%. In the case of a flat this is calculated as a minimum of 50% plus 2% for every complete year exceeding the 5 year qualification period, up to a maximum of 70% [note 79].
The courts have decided that a right to buy discount could be intended by the parties involved to be treated as a contribution to the purchase of the property by the person entitled to the discount, giving rise to a beneficial interest. The courts also decided that this is not an absolute principle but a matter for the courts to decide on the circumstances of the case. Where the transaction was found to be a sham, for example involving veiled operations such as the bankrupt entering into the transaction to disguise the sole beneficial owner, then the presumption could be displaced [note 80].
A number of companies specialise in buying properties and renting them back to the former owners to assist with financial difficulties. Typically, the property will have been purchased at a discount to produce a quick sale for the owner. Where a bankrupt is renting a property that they have previously owned there may be grounds for pursuing a transaction at undervalue. Further guidance is available in Chapter 31.3, Part 11.
Occasionally, a local housing authority may gain permission to demolish a property that is either public sector owned, or even privately owned if it is considered to pose a risk [note 81]. This could possibly affect a bankrupt who is a tenant of either a public sector or private landlord. It could also affect a bankrupt who has purchased a public sector or private property.
When a property that is rented by the bankrupt is subject to a demolition notice, the housing authority responsible will offer to re-house the individuals concerned and provide them with various payments towards the associated costs.
If a property in which a bankrupt resides is to be demolished he/she may be entitled to a home loss payment. In order to qualify for the receipt of a home loss payment the individual must, in the 12 months prior to displacement, have been in occupation of the property as his/her only or main residence [note 82]. As the home loss payment relates to the bankrupt’s occupation of the property the right to receive the payment is not capable of vesting in the official receiver as trustee as it is personal to the bankrupt. Once the funds have been received and changed character (for example, having been used to purchase an asset such as a car), the asset may be claimed by the official receiver, as trustee, as after acquired property (see paragraph 30.111 for more information). It would be for the bankrupt to make representation to the official receiver as to why the monies should be retained and not used for the benefit of the bankruptcy estate (see Chapter 31.8 and paragraph 31.9.13).
It is possible that a bankrupt may be paid a ‘disturbance’ payment as well as a home loss payment. If a “disturbance” payment is made, this will be to reimburse actual costs associated with the move such as removal costs, and the bankrupt should be allowed to retain such payments. If the actual costs are less than the payment received by the bankrupt, then the trustee may claim the balance as after acquired property.
If an “enhanced disturbance” payment is made, this will be towards potential costs such as re-decorating the new property, and this may be claimed by the trustee as after acquired property but where the bankrupt can show that this is needed for actual necessary costs, no claim should be made.
In the rare instance where a bankrupt who occupies a rental property, has exercised a right to sublet that property or part of that property, consideration needs to be given as to whether the bankrupt’s tenancy agreement forms part of the estate. If the tenancy is excluded from the bankrupt’s estate (under one of the exemptions listed in paragraph 30.95) the agreement under which the bankrupt is a tenant and any sub tenancies will not form part of the bankrupt’s estate. The effect of which will be that any rental income received by the bankrupt cannot be claimed by the trustee directly. The income received should however, be included in any IPA/IPO calculation Chapter 31.7.