DEALING WITH SOLELY OWNED TENANTED PROPERTIES WHERE OFFICIAL RECEIVER IS RECEIVER AND MANAGER
This part deals with the initial action that should be taken when a bankrupt is acting as a landlord of his/her solely owned residential tenanted property. The Part deals specifically with properties let on an assured shorthold tenancy (AST), including those which have become statutory periodic ASTs (see paragraphs 31.11.16 to 31.11.18). Where reference is made to a tenancy, this should be assumed to be an AST unless otherwise stated. This part provides details of the information that should be obtained by the official receiver in his/her capacity as receiver and manager to enable a decision to be made on how to best deal with the property. Where the bankrupt is the landlord under a long lease rather than a tenancy, reference should be made to Chapter 31.3, Part 7 for guidance on how to deal with the property.
To assist in locating information in the part, a breakdown of the chapter is provided as follows:
The holding of property as a long term investment, including the renting out of that property, is treated as an investment business by HM Revenue and Customs rather than a trading business. In an investment business the property is held to either produce income in the form of rent, long-term capital growth or a combination of both. In a property trading business property, is acquired with the intention of being developed and sold for a quick profit, and the properties held are treated as stock. Where property is rented out, and the underlying intention is to hold them for the long-term, then it is generally accepted by HM Revenue and Customs that the business is one of investment rather than trade (see Part 2, paragraphs 31.11.127 to 31.11.134 for information on the tax treatment of rented property).
The resulting income or gain from an investment business is taxed differently to that of a trading business (see paragraph 31.11.128).
As the renting out of property by a bankrupt is not classed as a trade, sanction to continue trading is not required from the Secretary of State [note 1].
As the property used in the business is an ‘investment’ rather than a ‘tool of the trade’, it vests in the trustee of the bankruptcy estate and the exempt property provisions are not applicable [note 2]. Any other items used for the purposes of the business (for example, furniture in furnished rented property) cannot be claimed by the bankrupt as exempt property [note 2], as they are not required to meet a basic domestic need of the bankrupt or his/her family.
It can also be argued that the property is not ‘necessary to the bankrupt for use personally’, much in the same way as a business that provides equipment for hire. See Chapter 30, Part 2 for further information.
Certain types of tenancy agreements are excluded from the bankrupt’s estate by legislation [note 3]. These exemptions include the majority of tenancies that the official receiver is likely to encounter such as assured tenancies and secure tenancies (as used by local councils and housing associations), and assured shorthold tenancies (as used by most private landlords), see Chapter 30, paragraph 30.70 for a full list.
The Insolvency Service has received advice that this exclusion is limited to where the tenancy is held by the bankrupt as a tenant, and not granted as a landlord. Chapter 30, Part 4 provides guidance on dealing with tenancies where the bankrupt is the tenant.
Whilst the official receiver is receiver and manager, his/her obligations are limited to the protection of the bankrupt’s estate [note 4]. Although the official receiver is not required to do anything that involves incurring expenditure unless directed to do so by the Secretary of State [note 5], he/she should take all reasonable steps to protect the value of the property that may later be claimed by the trustee [note 6].
When the official receiver is receiver and manager, he/she does not hold the full responsibilities of landlord, but see paragraphs 31.11.23 and 31.11.24 regarding certain duty of care obligations the official receiver has irrespective of whether he/she is receiver and manager or trustee.
It is important that early in the proceedings the official receiver takes steps to establish the type of tenancy agreement granted by the bankrupt on the property and whether or not it is currently valid. As the trustee will become landlord automatically on appointment [note 7] his/her obligations need to be established prior to that appointment if at all possible (see Part 2). See paragraph 31.11.14 for information on the different types of tenancies. As soon as the official receiver becomes aware of a tenanted property, he/she should ascertain details of the tenancy and obtain a copy of the tenancy agreement, if one exists. As the majority of tenancy agreements likely to be encountered by the official receiver will be ASTs, this Chapter deals specifically with ASTs, see paragraphs 31.11.16 to 31.11.18.
Unlike solely owned tenanted property where the official receiver will become landlord when the property vests in him/her as trustee, the legal title of jointly owned property remains vested in the joint owners (even if all joint owners are subject to bankruptcy orders). This is because the legal title cannot be severed. In turn this means that the official receiver will not become landlord when he/she becomes trustee. The joint legal owners will remain as the landlords, retaining all legal rights and responsibilities under the tenancy agreement. The only interest that will vest in the official receiver as trustee is the bankrupt’s beneficial interest in the property as the beneficial interest itself will not be severed (see Part 2, paragraph 31.11.65 for a definition of beneficial interest and legal title).
It is important to remember that a tenanted property is not normally a family home for the purposes of section 283A (see Chapter 31.3, Part 3) and as such, it will not re-vest in the bankrupt after 3 years. It will remain in the bankruptcy estate until it is dealt with (see Part 3). Tenanted property encountered by the official receiver will normally fall into one of the four categories below:
In situations a. to c. the notice offering the bankrupt the option to purchase back the interest [note 8] which would normally be sent when the official receiver is trustee, should not be sent. Neither should the notice to the bankrupt and other interested parties informing them that the property falls under section 283A [note 9]. The exception to this would be where the tenant is a former spouse, civil partner, ex spouse or ex civil partner (see paragraph 31.11.12) The bankrupt should not be led to believe that he/she may be able to purchase the property back from the official receiver. See Part 3 for information on when it may be possible to sell back a solely owned tenanted property.
For information on situation d. see paragraph 31.11.11 below.
In paragraph 31.11.10 category d. when a ‘lodger’ is living with the bankrupt in his/her home, the notice offering the bankrupt the option to purchase back the interest [note 8] should be sent when the official receiver becomes trustee and where the bankrupt’s interest in the property is greater than £1000, as the property is still the family home of the bankrupt (see Chapter 31.3, Part 3). See paragraph 31.11.19 on occupation of property under licence.
When ascertaining the details of any tenancy agreement, the official receiver should give consideration to the relationship of the tenant to the bankrupt. Where the tenant is the bankrupt's spouse, civil partner, ex-spouse or ex-civil partner, and the property is the sole or principal residence of that person, then the property may be considered to be a family home [note 10]. Where the bankrupt’s interest in the property is greater than £1000 it may be appropriate to send the notice offering to purchase back the interest in the family home to the bankrupt (see Chapter 31.3, Part 5).
All income receivable on an investment property forms part of the legal and beneficial interest that will vest in the official receiver if he/she becomes trustee of the bankrupt’s estate. Investment income which forms part of the estate cannot be treated as the bankrupt’s income for IPA/IPO purposes as it will vest in the trustee and should therefore be collected by the official receiver upon appointment as trustee. All rent and other income from an investment property should be collected in full by the official receiver and should not affect any IPA/IPO calculation. See Chapter 31.7 for guidance on IPA/O’s.
There are four main types of residential tenancies used by private landlords. Any of these tenancies can be either a fixed term tenancy (for an agreed set period e.g. six months), or a periodic tenancy (for an indefinite rolling period e.g. monthly or weekly).
In addition, the official receiver may encounter business tenancies when a property is rented to a business or company using the premises for commercial/non-residential purposes. Local authorities, housing authorities, registered providers of social housing and housing action trusts can use different types of tenancies, see Chapter 30, paragraphs 30.62A. It is unlikely that the official receiver will encounter the liquidation or bankruptcy of one of these types of organisations, but if he/she does, guidance is provided in paragraphs 59.75a to 59.76.
As the majority of tenancies encountered by the official receiver will be AST’s, the advice in this chapter is applicable to those tenancies.
A 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 [note 11]. By default, residential tenancies created in this way are usually assured shorthold tenancies (see paragraph 31.11.17 below).
All residential tenancies created since 28 February 1997 are ASTs unless the landlord gave specific notice that it is an assured tenancy [note 12] (see paragraph 30.64). There are certain exceptions to this [note 13], but these mainly relate to when notice is served, the continuation of previous secure or assured tenancies, local authority/housing association tenancies and assured agricultural occupancies.
If a bankrupt has created a residential tenancy agreement that was entered into verbally since 28 February 1997, it is by default an assured shorthold tenancy (see paragraph 31.11.17).
Common law tenancies fall outside the scope of the Housing Acts [note 13A, note 13B, note 13C]. 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.
Any residential tenancy which is excluded from being an assured tenancy by the Housing Act 1988, including where the rent equates to an annual rate in excess of £100,000, is a common law tenancy [Note 13D]
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).
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 14]. Under assured shorthold tenancy agreements, the landlord cannot recover possession until six months from the start of the tenancy but after that time, 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 15], see Part 3 on bringing a tenancy to an end.
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 for which the rent is normally payable [note 17]. For example, if an assured shorthold tenancy comes to an end on 31 January, 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 a monthly basis.
In a case that went to appeal, a flat was let on an assured shorthold tenancy that had been renewed. The term of the last agreement had been for one year less one day, and the rent was expressed as a yearly figure, payable quarterly in advance. The landlord served notice to quit at the end of the year, giving a quarter’s notice. When possession proceedings were brought, the district judge held that the tenancy was an annual tenancy and that the notice was premature. On appeal it was decided that the tenancy was actually for a quarterly period as determined by the last payment of rent the tenant had been obliged to make [note 18].
A licence is not a type of tenancy agreement (which is a property right), instead it 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 19].
A licence does not vest in the official receiver unless it is capable of being assigned [note 20]. As the arrangement between the bankrupt home owner and a lodger cannot be assigned, any rent paid under the licence does not vest in the official receiver as trustee. The official receiver should assess the rent received from that lodger as income, available for inclusion in any calculation for an IPA/IPO entered into before discharge, or in any variation of the amount to be collected under an existing IPA/IPO.
The general rule as to whether an arrangement is a tenancy 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 (unless the landlord is exercising rights to enter under the terms of the tenancy), out of defined premises. There can be no tenancy without the granting of exclusive possession. This means that a tenancy can only be granted over whole lockable premises rather than just a room in a home which the landlord has promised not to enter. The ability to secure the premises is an essential factor in defining exclusive possession.
The types of agreements most usually granted by a bankrupt will be either assured shorthold tenancies (either written or verbal, see paragraphs 31.11.15 to 31.11.18) or licences (see paragraph 31.11.19). When either of these are encountered the official receiver should usually allow the agreement to continue for the benefit of the estate but before a decision can be taken, further enquiries are needed to establish the terms of the tenancy or licence, see paragraphs 31.11.25 to 31.11.26.
When the official receiver encounters a tenancy where the property is overseas, reference should be made to Chapter 43.0, Annex F for some guidance on establishing the value of the property. The law that governs the tenancy will be that of the country in which the property is located. The following website provides a useful reference point for information on renting property in France, Germany, Italy, The Netherlands and Spain
A duty of care is owed between an occupier of premises and his/her lawful visitors [note 21] and an occupier also owes a limited duty of care to trespassers [note 22]. The question of who is an occupier depends upon the particular facts of each case but generally it would be the person who is in actual occupation for the time being, or who has possession or physical control of the premises. Accordingly, it will normally be the tenant that has the duty of care, although where a tenant has left the premises. which is otherwise unoccupied, the official receiver, as receiver and manager of the bankruptcy estate, is likely to be considered to be the occupier of the premises.
The official receiver should establish whether or not public liability insurance is held by the bankrupt, as landlord, and should ensure that such insurance is put in place where none is in existence, see paragraphs 31.11.27 and 31.11.28.
In all cases where the insolvent is a landlord there is likely to be a duty of care in relation to defective premises [note 23]. The landlord owes to all persons who might reasonably be affected by defects in the state of the premises a duty to take such care as is reasonable in all the circumstances to see that they are reasonably safe from personal injury or from damage to their property caused by a relevant defect.
Legislation provides that a duty of care is owed by a landlord to visitors, and possibly trespassers, where the premises are let under a tenancy agreement which places the landlord under an obligation to the tenant for the maintenance or repair of the premises or where the landlord has the right to enter the premises and carry out such repairs. The duty arises when there has been a breach of that obligation to repair (or failure to exercise the right of repair) which has led to the defect in the premises which caused an injury to, or damage to the property of, the tenant or visitor or any other person who might reasonably be expected to be affected by defects in the premises. This duty only applies if the landlord knew, or in the circumstances ought to have known, of the relevant defects. The duty cannot be excluded and the official receiver as liquidator, receiver and manager or trustee may become subject to it. See Chapter 8, Part 7 for more information.
The official receiver should ensure public liability insurance is held by the bankrupt and, if not, it should be obtained as a matter of urgency on all tenanted properties, see paragraphs 31.11.27 and 31.11.28 for further information.
When dealing with a creditor’s petition case, a tenanted property is most likely to be discovered if contact is made with the bankrupt either by telephone, face to face at the interview or on an inspection. As soon as a tenanted property is discovered, then the examiner or case support officer should complete the tenanted property questionnaire (Annex C) whilst speaking to the bankrupt. As much information as possible should be established to enable enquiry letters to be sent to all relevant parties as soon as possible. Where the bankrupt cannot provide the information, he/she should be encouraged to call back within the next 24 hours with the information needed. If the bankrupt cannot provide all the information needed within 24 hours, then a copy of the questionnaire may be sent out and the bankrupt asked to return it with any other information requested within seven days.
In a debtor’s petition case it is likely that the bankrupt will highlight a tenanted property at the initial contact stage when asked whether there are any assets in jeopardy or whether there are any matters requiring immediate attention. Also a tenanted property might be listed in the statement of affairs and therefore discovered when the examiner reviews it on receipt from court.
Immediately on discovering a tenanted property the examiner should attempt to complete the tenanted property questionnaire (Annex C) with the bankrupt over the telephone. As much information as possible should be established to enable enquiry letters to be sent to all relevant parties as soon as possible. Where the bankrupt cannot provide the information he/she should be encouraged to call back within the next 24 hours with the information needed. If the bankrupt cannot provided all the information needed within 24 hours, then a copy of the questionnaire may be sent out and the bankrupt asked to return it with the other information requested in time for the interview. A case with a tenanted property would not be classed as a Type 0 case (see Chapter 11, paragraph 11.35).
Enquiries must be made in all cases and as regard all properties to obtain details of any insurance policies in force and, wherever possible, possession should be taken of the relevant policy documents and any current certificates relating to those policies. The bankrupt may have specific ‘landlord insurance’ which includes public liability insurance along with buildings insurance and, if the property is furnished, contents insurance. See Chapter 49, Part 2 for guidance on continuing existing insurance policies. Any policy documents recovered should immediately be handed to the office cashier to record in the valuables register and place in the office safe for safe keeping until an insolvency practitioner is appointed to be the trustee of the bankrupt’s estate or the property is disposed of by the official receiver as trustee.
If adequate insurance is not in place on a tenanted property, i.e. landlord’s insurance including public liability insurance and building insurance, this should be attended to immediately. Reference should be made to Chapter 49, Part 3 for advice on how to obtain cover under the Willis Insolvency Open Cover Insurance Facility. Generally speaking, provided that the property is still used for residential purposes and certain limits are not exceeded, then the case will be suitable for the premium bordereau for smaller non-trading cases (see Chapter 49, Annex 3 for details of the exclusions to this). If a case is eligible for this cover, then the official receiver is required to add the case to the office bordereau form (Annex 2 to the Willis Insolvency Manual). In order for an asset to be covered by Willis, it must be put on the office bordereau as soon as the official receiver becomes aware of its existence. Only where a case does not fall into these criteria is it necessary to telephone Willis to agree individual insurance cover (see paragraph 49.28). Generally speaking, this will relate to property rented out to a business for commercial purposes.
(Amended February 2014)
The official receiver’s insurance must be cancelled when the property is:
The official receiver should follow the guidance in paragraph 49.27B when cancelling insurance.
Following completion of the questionnaire, letters should be sent to the following people as soon as their details are known:
(a) The bankrupt (see paragraph 31.11.30)
(b) The tenant (see paragraph 31.11.31)
(c) The mortgagee and any other chargeholder (see paragraph 31.11.34)
(d) The letting agent (if applicable) (see paragraph 31.11.40) and
(e) The deposit scheme holder (see paragraph 31.11.45 to 31.11.49).
A letter should be sent to the bankrupt (Annex D) following the initial contact or initial enquiries enclosing copies of the letters sent to the tenant and letting agent if appropriate (see paragraph 31.11.31 and 31.11.40). The letter states that when the property vests in the trustee, the trustee will become the landlord and will be entitled to collect the rent. It also tells the bankrupt to forward to the official receiver any rent received from the tenant following the making of the bankruptcy order (and any held at the date of that order).
Whilst acting as receiver and manager, the official receiver should send an initial enquiry letter to the tenant (Annex E) to establish the current position of the tenancy. The letter asks for the tenant to confirm details regarding the payment of rent, whether there are any arrears and for a copy of the tenancy agreement if the bankrupt has not already provided a copy.
The letter also seeks to reassure the tenant that if the bankrupt held any security deposit at the date of the bankruptcy order, then it will be secured by the official receiver. The letter further states that when the trustee is appointed he/she will become landlord and will be entitled to collect the rent and be responsible for any repairs needed to the tenanted property under the terms of the tenancy agreement.
The initial letter to the tenant (Annex E) requests that where there is no letting agent, that the tenant sets aside the rent that they would normally pay to the bankrupt pending the appointment of a trustee. If there is a letting agent, then payments should continue to the agent and the official receiver should ask the agent to hold the rent pending the appointment of a trustee of the bankrupt’s estate (see paragraph 31.11.40).
The official receiver should be aware that the bankrupt will remain as the landlord of the property until the estate vests in the trustee upon his/her appointment. If the tenant declines to set aside the rent for the trustee and continues to pay it to the bankrupt, the trustee will need to recover the payments from the bankrupt, see Chapter 31.4B, Part 5.
If the tenant refuses to set aside the rent, the bankrupt should be reminded that any disposition of property that he/she makes prior to the appointment of a trustee will be void [note 24]. To avoid any difficulties in recovery later on, the official receiver, as receiver and manager, should ask the bankrupt to forward the monies on to him/her immediately [note 6].
Any mortgagee of tenanted property should be sent notice (Annex F) in order to protect the official receiver’s interest in respect of the charged asset (the property) and to make early enquiries into the value of the asset. The notice in tenanted property differs to the standard mortgagee enquiry letter [note 25] as it asks for a response within seven days on the most urgent queries. The official receiver needs to know urgently whether or not the mortgagee;
(a) has consented to the property being let,
(b) wishes to appoint a receiver of rents, and
(c) wishes to, or has already taken, any possession proceedings.
This information will assist the official receiver in deciding whether or not to consult creditors and apply for an urgent Secretary of State appointment of an insolvency practitioner as trustee, see paragraphs 31.11.57 to 31.11.61. If the mortgagee intends to appoint a receiver, or take possession quickly, then it is unlikely that it would be a suitable case for the appointment of an insolvency practitioner based on that particular property alone.
The official receiver will also need to decide whether to obtain insurance as a matter of urgency (see paragraph 31.11.28).
It is important to let the mortgagee know at an early stage that if the official receiver does collect rent from the tenant, this will not be used in paying the mortgage debt. This information is contained in the initial letter, Annex F. See Part 2 for information on the collection of rent.
It is important that the mortgagee understands this position as such information may well assist the mortgagee in deciding whether or not to appoint a receiver.
The mortgagee is bound by the terms of the tenancy agreement and so cannot evict the tenant if they repossess the property without giving proper notice [note 26] in the following situations:
(a) If the tenancy has been granted with the consent of the mortgagee, either on:
1) A buy-to-let mortgage, or
2) a residential mortgage where the mortgagee has subsequently consented to the mortgagor renting out the property.
(b) If the tenancy was already in place prior to the mortgage loan being granted [note 27] or
(c) Where the mortgagee has acknowledged a tenancy by its action after the tenancy was granted without its initial consent [note 28].
For information on proper notice required to evict a tenant, see Part 3.
A tenancy agreement is not binding on the mortgagee when the following criteria are met:
(a) Where a property is rented out after a mortgage loan is obtained on the property without the mortgagee’s consent and
(b) The mortgagee has not acknowledged the tenancy by any subsequent positive action (for example, receiving rent directly from tenant). Inaction by the mortgagee with the knowledge that there is an unauthorised letting on the property of the bankrupt does not amount to positive action [note 29].
Where the property has been rented out without the mortgagee’s consent the official receiver may wish to consider investigating the reasons for this.
It is unlikely that a mortgagee will appoint a receiver when they have not given the bankrupt permission to rent out the property. This is because to do so may bind the mortgagee to a tenancy that they are not currently bound by [note 31] (see paragraph 31.11.37). The likely action, if any action is to be taken by the mortgagee, will be to commence possession proceedings.
Some mortgage deeds may contain a clause entitling the mortgagee to security over the rent. This is only likely where a specific buy-to-let mortgage has been obtained. Official receivers should proceed on the basis that the mortgage does not contain such a clause. If the initial letter to the mortgagee (Annex F) prompts them to notify the official receiver of such a clause, a copy of the mortgage terms and conditions should be requested to verify this.
Where there is a condition in the mortgage entitling them to the rent directly, the official receiver should ask the mortgage company to confirm that they will also be taking on the responsibility for the tenancy agreement. If the mortgage company refuse to do so, and the property is in negative equity, consideration should be given to disclaiming the reversionary interest in the property and tenancy agreement (see Part 3). See paragraph 31.11.65 for a definition of reversionary interest.
If a letting agent has been appointed by the bankrupt, the type of service they provide will depend on the terms of the contract. These range from the collection of rent only to a full management service where the agent is responsible for arranging any repairs and safety inspections (see paragraphs 31.11.88 and 31.11.89) and dealing with tenants. A letter should be sent to the letting agent (Annex G) to ascertain the level of service provided, and details of the tenancy. It should also be established whether the agent holds any rent or other money and,if so, the agent should be asked to hold those monies to the order of the trustee.
It is a common requirement of a tenancy agreement that the tenant pays a security deposit to the landlord. The security deposit is a refundable charge and is usually charged at one months rent. At the end of the rental period the deposit will be refunded, providing that the tenant has not damaged the property.
Where the tenancy agreement has been entered into after 6 April 2007, the landlord must protect the deposit within a tenancy deposit scheme. This applies to all assured shorthold tenancy agreements where the annual rent does not exceed £25,000 [note 32]. The deposit must be protected within fourteen days of the landlord receiving it.
If the landlord resides in the same property as the tenant, the tenancy cannot be an assured shorthold tenancy and so any deposit taken in these situations does not need to be placed in a tenancy deposit scheme (see paragraph 31.11.19 on licences).
Tenants have a responsibility to make sure that the property is in as good a condition when they move out as it was when they moved into the property, subject to normal/fair wear and tear. When the tenancy comes to an end, the landlord is entitled to check the condition and contents of the property and, if all is well, the full amount of the deposit should be returned to the tenant. Where damage, other than usual wear and tear, has occurred, the landlord may be entitled to withhold all or part of the deposit to restore the property to the original position.
If an agreement about how much of the deposit should be returned cannot be reached between the landlord and the tenant, tenancy deposit schemes offer a free service to help resolve disputes.
There are two types of tenancy deposit schemes available:
The Deposit Protection Service offers the only type of custodial scheme. It is funded entirely from the interest earned on the deposits held. When completing the initial questionnaire (Annex C, see paragraphs 31.11.25 to 31.11.26) with the bankrupt, it is important to establish all relevant details about the deposit. The bankrupt should be able to provide the name of the scheme in which the deposit is held and, if it is held with The Deposit Protection Service, the deposit ID should also be requested from the bankrupt for correspondence purposes. A request should not be made by the official receiver for the provisions of the bankrupt’s password as this would have security implications. See paragraph 31.11.48 for details of the letter to be sent by the official receiver as receiver and manager.
The contact details for the Deposit Protection Service are:
Telephone: 0844 4727000
Additionally the website operates both a Virtual Customer Service Agent and an Online Enquiry Form to deal with any enquiries. The frequently asked questions on the website may also provide the official receiver with additional useful information.
Mydeposits is one of two insurance based schemes available. When completing the initial questionnaire (Annex C, see paragraphs 31.11.25 to 31.11.26) with the bankrupt, it is important to establish all relevant details about the deposit. The bankrupt should be able to provide the name of the scheme and, if it is held with Mydeposits, the property’s rental postcode, tenant’s surname and month the deposit was provided. This will enable the official receiver to check if the deposit is covered by the scheme online. A membership number should also be requested from the bankrupt for correspondence. A request should not be made by the official receiver for the bankrupt’s password as this would have security implications. See http://www.mydeposits.co.uk/ for more details of the scheme and paragraph 31.11.49 for details of the letter to be sent.
Contact details are:
Ground Floor, Kingmaker House
Telephone: 0844 9800290
Fax: 08456 343403
The Tenancy Deposit Scheme is the second of the two insurance based schemes available. When completing the initial questionnaire (Annex C, see paragraphs 31.11.25 to 31.11.26) with the bankrupt, it is important to establish all relevant details about the deposit. The bankrupt should be able to provide the name of the scheme and, if it is held with The Tenancy Deposit Scheme, a tenancy UID code is all that is needed to check if the deposit is covered by the scheme online. A membership number should also be requested from the bankrupt for correspondence purposes. A request should not be made by the official receiver for the bankrupt’s password as this would have security implications. See http://www.thedisputeservice.co.uk/ for more details of the scheme and paragraph 31.11.49 for details of the letter to be sent.
Contact details are:
PO Box 1255
Telephone: 0845 2267837
Fax: 01442 253193
An initial letter (Annex H) should be sent to the Deposit Protection Service scheme administrator if the tenant’s deposit has been protected (see paragraph 31.11.45 for contact details). A copy of the bankruptcy order should be sent as evidence of its existence, and the deposit ID number should be quoted, where known. If the bankrupt cannot provide the deposit ID number, the scheme administrator should be able to find the deposit using the name of the bankrupt landlord, the name of the tenant, and the address of the rented property. The (approximate) date that the tenancy commenced will also assist in locating the deposit.
The scheme administrator should be told that when a trustee is appointed, he/she will become the landlord and that no action should be taken to release the deposit until the trustee’s appointment.
An initial letter (Annex I) should be sent to the relevant scheme administrator if the tenant’s deposit has been protected by an insurance based scheme (see paragraphs 31.11.46 and 31.11.47 for contact details). A copy of the bankruptcy order should be sent as evidence of its existence, and the relevant reference number should be quoted where known. If the bankrupt cannot provide a reference number, the scheme administrator should be able to find the deposit with the name of the bankrupt landlord, the name of the tenant and the address of the rented property. The (approximate) date that the tenancy commenced will also assist in locating the details.
The initial letter to the scheme administrator should provide information as to whether or not the deposit is still held (Annex I). If not, then the tenant will be able to claim back the deposit from the scheme administrator who, on settling the claim, will then become a creditor in the proceedings for that amount. The insurance company is subject to the same restrictions on taking proceedings for a bankruptcy debt as the tenant [note 33]. Following bankruptcy, the insurance based schemes may terminate cover. If the cover is terminated, the tenant will have 90 days from the date of the cancellation notice to make a claim or the deposit will cease to be protected.
If the bankrupt has not protected the deposit, and at the date of the bankruptcy order the deposit is not held, then the tenant will become a creditor for the amount of the deposit which would be due back on termination of the tenancy [note 34].
Where the bankrupt has not protected the deposit the official receiver may wish to consider investigating the reasons for this.
The official receiver should ensure that any deposit held by the bankrupt at the date of the order is protected. Where a deposit is held by the bankrupt at the date of the order, it should be secured by immediately writing to the bank (or other party) where the deposit is held (see Chapter 31.5, paragraph 31.5.20). The official receiver should then withdraw the deposit monies and place them into the Deposit Protection Service scheme (see paragraph 31.11.45).
Where a deposit has been taken prior to 6 April 2007 (see paragraph 31.11.42), or for a type of tenancy which is not subject to the provisions of tenancy deposit schemes, then provided it has been retained, the official receiver should look to secure the account it is held in for future release to the tenant. If the monies cannot be identified (for example, if they have been kept in the bankrupt’s current account), the tenant would be a creditor in the bankruptcy proceedings. See paragraph 31.11.50.
Where possible the official receiver, as receiver and manager, needs to obtain sufficient information for the trustee, once appointed, to make an immediate decision on how to best proceed with the property. See flowchart (Annex A) for guidance on the decision making process.
The official receiver should attempt to ascertain:
(a) Information which would assist the trustee in deciding whether the property, including the tenancy agreement, is onerous, see paragraph 31.11.54.
The official receiver, as receiver and manager, should, where possible, obtain sufficient information for the trustee to make a decision on whether or not to disclaim the tenancy agreement and reversionary interest in the property.
To assist the trustee in reaching this decision, the official receiver’s enquiries should ascertain:
(a) The current condition of the property and whether any major or expensive repairs are required (e.g. roof or chimney unsafe). See Part 2, paragraphs 31.11.94 to 31.11.96 for further guidance on the cost of repairs.
(b) Details of the current occupants of the property and the terms of their occupancy.
(c) Details of any rent arrears in relation to any tenancy agreement and the willingness of the tenant to pay these arrears and the future rent.
(d) Details of any tenancy with unusual and excessive requirements on the landlord.
The decision as to whether or not to disclaim a property lies with the trustee, see Part 3, paragraphs 31.11.153 to 31.11.169.
To assist the official receiver on his/her appointment as trustee, the official receiver, as receiver and manager, should ascertain if the mortgagee intends to appoint a receiver or commence possession proceedings in relation to the property (see paragraph 31.11.34).
If the mortgagee intends to appoint a receiver, or to take possession quickly, then it is unlikely that an insolvency practitioner trustee will be appointed, in the place of the official receiver, unless there is significant equity in the property or there are other suitable assets to support the appointment, see paragraph 31.11.57.
If a Law of Property Act receiver has already been appointed, then a letter should be sent to the mortgagee asking for a copy of the document of appointment. The receiver should also be informed that the official receiver considers that if the mortgagee has the right to receive the rent, they will also be considered to be the landlord of the property and that the official receiver will not be taking any action in relation to the obligations attached to the tenancy agreement. See Chapter 9, Part 3 and Chapter 69 for more information on receivers.
Where a tenanted property has sufficient equity to attract an insolvency practitioner, then an appointment should be sought as soon as possible via the Secretary of State primary rota (see Chapter 17, Part 5). Such an appointment is considered urgent as the property (including the tenancy agreement) can be regarded as being an asset in jeopardy. Without a trustee the bankrupt remains as landlord with the ability to deal with the property including collecting the rent and ending the tenancy.
A mortgagee in relation to the property should be given seven days to reply in the initial letter (Annex F). If the mortgagee has not replied within seven days, the letter should be followed up with a telephone call to be certain that the mortgagee has been given sufficient opportunity to consider the contents of the letter prior to an insolvency practitioner being appointed trustee.
An insolvency practitioner appointment may be appropriate even if the mortgagee has indicated that they are going to appoint a receiver or take possession (see paragraph 31.11.55) if they have not indicated when they will take that action.
Where there are assets in a bankrupt’s estate other than the tenanted property e.g. the family home, a motor vehicle or book debts, then consideration should be given by the official receiver to a possible appointment of an insolvency practitioner, to act as trustee of the bankrupt’s estate, from the primary rota. (see paragraphs 31.11.59 to 60)
Where there are no assets in a bankrupt’s estate other than the tenanted property and the mortgagee has not indicated that a receiver of rents will be appointed or that action will be taken to repossess the property, then the case should be offered to the next insolvency practitioner on the bankrupt landlord rota which is maintained by each office (see paragraph 31.11.60).
If the mortgagee has indicated that they are going to take immediate steps to appoint a receiver, then the case should not be offered to an insolvency practitioner on the bankrupt landlord rota.
When offering a case to the next insolvency practitioner on the bankrupt landlord rota the same process should be followed as when dealing with the primary rota (see Chapter 17, Part 5). The official receiver must become trustee for an insolvency practitioner to be appointed in his/her place by the Secretary of State, see paragraph 17.50. Where the main creditors cannot be contacted to seek their views, or where they decline to make an immediate decision, then an appointment may still be possible. It should be reported to Insolvency Practitioner Unit when requesting the appointment that the office has not been able to contact the majority of creditors but that an appointment is being sought due to operational needs.
When an insolvency practitioner accepts an appointment as trustee via either the primary or bankrupt landlord rota, then it is not necessary to send any initial letters to third parties and this will be the responsibility of the trustee as landlord (see Annex D - P). In addition to other information, the insolvency practitioner should be provided with a copy of the tenanted property questionnaire (Annex C) relating to the property as a matter of urgency so that they are in possession of all relevant information relating to the property and the tenancy agreement.
Where contact is made with any third parties, such as the tenant or mortgagee, care should be taken that the third party is not led to believe the official receiver will become the substantive trustee, and that a certain course of action will be taken.