PART 7
April 2013
DEALING WITH PROPERTY WITH LEASEHOLDERS
31.3.205 This Part does not apply to assured or assured shorthold tenancies
For clarification, the guidance in this Part does not apply where the tenants have assured or assured shorthold leases [note 1].
Guidance on dealing with tenanted properties where the insolvent was landlord in respect of those type of tenancies can be found in Chapter 31.11 (solely-owned) and Chapter 31.12 (jointly-owned).
This Part provides guidance to assist the official receiver when he/she is dealing with a property with tenants of which the insolvent is the landlord. Particularly, this Part gives information regarding:
The need to consider these provisions is most likely to occur where the official receiver is dealing with a freehold reversion (see paragraph 31.3.20).
31.3.207 Realisation where insolvent is landlord – general
Legislation [note 2] provides that where a landlord (but not of assured or assured shorthold tenancies – see paragraph 31.3.209) makes a ‘relevant disposal’ of a property, he/she must give qualifying tenants of certain premises the right of first refusal, by offer notice, to acquire the landlord’s interest (see paragraphs 31.3.210 to 31.3.216).
Whenever, therefore, the official receiver, as liquidator/trustee, is to dispose of property and as at the date of the insolvency order the insolvent (or official receiver, as trustee) is landlord, he/she should consider the contents of this Part.
31.3.208 Legal/professional advice likely to be required
This Part gives an overview of the relevant provisions in order to bring them to the attention of the official receiver but legal or professional advice should be obtained when consideration is given to making a relevant disposal (see paragraph 31.3.237).
The provisions described in this Part apply where the tenant is a company or individual holding a tenancy (including a sub-tenancy or statutory tenancy), but not a protected short-hold tenant, business tenant, service tenant, an assured tenant, a tenant in relation to his/her employment or an assured agricultural tenancy.
There are further qualifications expressed in the legislation [note 3].
A relevant disposal is a disposal by a landlord of any estate or interest (legal or equitable) in any defined premises (see paragraph 31.3.214), whether by the creation or the transfer of a estate or interest [note 4] [note 5].
Certain disposals are excluded from this definition (see paragraph 31.3.202)
Certain disposals are excluded from the provisions described in this Part, and it would not therefore be necessary to give the tenants the right of first refusal (see paragraph 31.3.207). In all cases, the official receiver, or his/her advisors (see paragraph 31.3.208), should carefully consider the specific criteria set out in the legislation [note 6] before deciding that a disposal is excluded.
The main exclusions, which are most likely to be relied upon by the official receiver, are:
a) A disposal by one corporate body to another, which has been an associated company [note 7] for at least two years [note 8]. A corporate body includes limited companies, limited liability partnerships, and friendly, industrial and provident societies.
b) A disposal consisting of the transfer of an estate or interest in land held on trust for any person where the disposal is made in connection with the appointment of a new trustee or discharge of any trustee [note 9]
c) A disposal being the transfer by two or more persons who are members of the same family either to [note 10]:
d) A disposal consisting of the surrender of a tenancy in pursuance of any covenant, condition or agreement contained in it [note 11].
e) A disposal to the Crown [note 12].
It will be noted from the above that a disposal to a joint owner is not one of the excluded disposals, unless under the conditions outlined at (c), above.
31.3.212 Vesting of property in trustee or liquidator is excluded disposal
The vesting of property in the trustee or (the less likely vesting of a property in a liquidator) the liquidator is not considered to be a relevant disposal for the purposes of this provisions [note 13].
It is strongly arguable that a disclaimer is not a ‘relevant disposal’ of an interest in a property (see paragraph 31.3.210). Upon disclaimer of a solely-owned freehold property, the legal estate, in the absence of a vesting order, reverts to the crown (see paragraph 34.80). A disposal to the Crown is excluded from the definition of relevant disposals [note 14]. Where the property is jointly-owned by the insolvent, the official receiver may only disclaim the beneficial interest in the property and there is therefore no disposal of the legal title – it remaining with the joint owners (see paragraph 31.3.21).
The provisions apply in relation to premises consisting of the whole or part of a building which contains two or more flats (see paragraph 31.3.215) held by qualifying tenants (see paragraph 31.3.209) who hold more than 50% of the total number of flats contained in the premises [note 15].
The provisions do not apply where more than 50% of the internal floor area of the premises is occupied, or is intended to be occupied, otherwise than for residential purposes [note 16].
For the purposes of these provisions, a ‘flat’ is defined as a separate set of premises, whether or not on the same floor, which forms part of a building, is divided horizontally from some other part of that building and is constructed or adapted for use for the purposes of a dwelling [note 17].
The provisions apply to all landlords of applicable premises (see paragraph 31.3.214) except:
a) Where he/she is not the immediate landlord of the tenant or where he/she would not be entitled to the premises in the case of a statutory tenancy [note 18].
b) Where he/she occupies, as his/her primary residence, a flat in a building not purpose built as a block of flats and has so resided for at least 12 months [note 19]
c) Certain public bodies and housing associations [note 20].
It is likely that only the provision at (a) above may apply to the official receiver, as liquidator or trustee.
31.3.217 Notice to the tenants
Assuming that all the conditions outlined in paragraphs 31.3.209 to 31.3.216 are met, it will be necessary for the official receiver, as liquidator/trustee, wishing to make a relevant disposal of the property to instruct solicitors to prepare and serve an ‘offer notice’ giving the tenants first refusal. The offer notice must comply with the requirements of the legislation. Primarily these requirements are for the landlord to describe the property and the terms of the offer (including the requested consideration), and to give a deadline in which to respond [note 21].
31.3.218 Official receiver unable to serve all tenants
Where the official receiver, as liquidator or trustee, is unable to serve the offer notice (see paragraph 31.3.217) on all the tenants, he/she will be considered to have met this obligation if:
31.3.219 Response to offer notice
The requisite majority of the qualifying tenants may serve notice on the landlord that they accept the offer to sell the insolvent’s interest in the property to them (referred to as an ‘acceptance notice’). The tenants are then required to nominate a person (the ‘nominated person’) to acquire the interest within the period specified in the offer notice. The interest can be disposed of only to that nominated person [note 24] [note 25].
31.3.220 Response to offer notice – time limits
The tenants must be allowed at least two months, from the date of the notice, in which to accept the offer to dispose of the property to them, and a further period of at least two months within which to nominate a person to acquire the property (see paragraph 31.3.219). The time limit will run from the date of the last notice to be served [note 26] [note 27] [note 28].
31.3.221 No response received to offer notice – ability to dispose
If an acceptance notice (see paragraph 31.3.219) is not received within the specified period (see paragraph 31.3.220) the insolvent’s interest may be sold to any other party, or otherwise disposed of, within 12 months following the expiry of that notice [note 29].
Any sale may only be for a consideration of at least the amount shown in the offer notice (see paragraph 31.3.217) and on the terms corresponding to those specified in the offer notice. If a lower consideration is to be accepted, then it will be necessary to recommence the procedure by serving new notices on the tenants to include details of the revised consideration/terms [note 30] [note 31].
At any time after the acceptance notice and before a binding contract has been entered into, the tenants, via the nominated person (see paragraph 31.3.219), may serve a ‘notice of withdrawal’ [note 32]. Similarly, the official receiver (as landlord), as liquidator or trustee, may serve such a notice [note 33].
31.3.223 Notice of withdrawal – effect where nominated person serves
Where the nominated person serves the notice of withdrawal (see paragraph 31.3.222), the effect is the same as if no offer had been made (see paragraph 31.3.221), except that the official receiver would have 12 months from the date of the service of the withdrawal notice in which to dispose of the interest [note 34].
31.3.224 Notice of withdrawal – effect where official receiver (as landlord) serves
Where the official receiver, as liquidator or trustee serves a notice of withdrawal (see paragraph 31.3.222), he/she is not entitled to dispose of the interest during the 12 months beginning with the date of the withdrawal notice [note 35].
Where a notice of withdrawal (see paragraph 31.3.222) is served within four weeks of the appointment of the nominated person (see paragraph 31.3.219), there will be no liability to pay the other party’s costs [note 36] [note 37].
If the notice is served after that initial four week period, the party serving it shall be liable for the other party’s costs from the end of the four week period to the service of the notice of withdrawal [note 38] [note 39].
31.3.226 Enquiry notices and purchase notices served upon the official receiver
The official receiver may be dealing with a property that has been purchased by the insolvent in circumstances where the person from whom the insolvent purchased the property did not fulfil the obligations to the tenants (see paragraph 31.3.207).
In such a case, the tenants may serve an enquiry notice on the official receiver (in his/her role as liquidator or trustee) [note 40], the purpose of which is to establish details of that earlier transaction. The official receiver should reply to such a notice within one month of receipt with such details of the transaction as are known [note 41].
Following the enquiry notice, the tenants may enforce their right to take advantage of the contract of purchase as if the tenants were the original purchaser. Where there was no contractual disposal, the tenants may serve a ‘purchase notice’ requiring disposal of the property to a person or persons nominated by a requisite majority of the tenants on the same terms as the insolvent acquired the property [note 42] [note 43].
31.3.227 Action where tenants attempt to force right to purchase
Where the official receiver receives notice that the tenants are seeking to enforce their right to purchase (see paragraph 31.3.226), the advice of Technical Section should be sought. It is likely that legal advice will be required if the property has a value to the estate.
31.3.228 Power of tenants to seek information from landlord
In addition to the power of tenants to seek information relating to a previous sale of a property (see paragraph 31.3.226), they also have the power to enquire into a landlord’s intentions and, perhaps, force the landlord to sell the freehold or grant a new lease [note 44]. Guidance on these provisions is provided in paragraphs 31.3.220 to 31.3.226.
31.3.229 Ability of tenants to require landlord to take action
Where the insolvent’s interest is in a property which is wholly or mainly residential and contains two or more flats [note 45], a qualifying tenant (which is essentially a tenant of a residential property with a long lease [note 46] [note 47]) has the power to serve notices on the official receiver, as liquidator or trustee, requiring that certain actions are carried out (see paragraph 31.3.230).
31.3.230 Type of action that can be requested by tenant
Tenants have the power to request the following from the official receiver, in his/her role as landlord, by notice:
a) Information about the insolvent’s interest in the property, including sight of documents relating to the lease [note 48];
b) To exercise their right to purchase the insolvent’s freehold interest (known as the ‘right of (collective) enfranchisement’) [note 49];
c) To acquire a new lease [note 50].
31.3.231 Time limits to respond to notice served by tenants
The official receiver, as landlord, is required to respond to requests made under (a) in paragraph 31.3.230 within 28 days [note 51]. Requests made under (b) or (c), above, must be responded to within two months (or longer if allowed in the notice) [note 52] [note 53] [note 54] [note 55].
31.3.232 Action where notice served and official receiver not dealing with property
Where a notice has been served by a tenant (see paragraph 31.3.230) and someone other than the official receiver is dealing with the property (where, for example, a receiver has been appointed, or an insolvency practitioner is trustee or liquidator), the official receiver should request that the tenant serve the notice on the person with responsibility for the property.
Where the notice was served on the official receiver prior to handover of the estate, the attention of the insolvency practitioner should be specifically drawn to it in the handover record [note 56].
31.3.233 Action where notice served requesting information
Where the official receiver receives a notice requesting information (under the provision described at (a) in paragraph 31.3.230), he/she should, wherever possible, provide the information within the applicable time limit (see paragraph 31.3.231). Where the official receiver becomes aware that such a notice was served upon the insolvent, steps should be taken to respond within the time period remaining, but certainly within the same time scale starting from the date he/she became aware of the notice.
31.3.234 Action where notice received requesting enfranchisement
Where the official receiver, as liquidator or trustee, receives a notice requesting enfranchisement (see paragraph 31.3.230) (often known as the ‘initial notice’), it will be necessary for the official receiver to consider whether a right to enfranchisement exists and, if so, deal with the transfer of the freehold to the tenants.
Given the technical nature of the legislation in this regard, it is very likely that it will be appropriate for the official receiver to seek legal advice, requesting that the tenants provide the costs. The website of the Leasehold Advisory Service has a list of solicitors who are experienced in dealing with these matters (http://www.lease-advice.org/information/advisors/).
31.3.235 Action where notice received requesting new lease
Where the official receiver, as liquidator or trustee, receives a notice requesting a new lease (see paragraph 31.3.230), it will be necessary for the official receiver to consider whether a right to a new lease exists and, if so, deal with granting of the lease, including negotiating the consideration.
Given the technical nature of the legislation in this regard, it is very likely that it will be appropriate for the official receiver to seek legal advice, requesting that the tenants provide the costs. The website of the Leasehold Advisory Service has a list of solicitors who are experienced in dealing with these matters (http://www.lease-advice.org/information/advisors/).
31.3.236 Freehold reversion and the family home
It is possible that the bankrupt’s interest in a freehold reversion may also be an interest in the family home (see Part 3) where, for example, he/she or a spouse, etc. live in one of the leasehold properties under the freehold. In such a case, the freehold reversion would have to be dealt with within the three year period (see paragraph 31.3.80).
31.3.237 Sale of freehold reversion – service provider
Although official receivers are not obliged to use the service, and may choose their own agent, WH Breading and Son Ltd (see paragraph 31.3.238 for contact details) offer a national service to dispose of a freehold reversion (see paragraph 31.3.20).
In particular, the firm will:
31.3.238 Instructing WH Breading and Son Ltd
For instruction, WH Breading and Son Ltd require a copy of the land register extract with, if possible, one of the leases.
The fees for dealing with the disposal are £250 plus Vat for up to four leaseholds and £500 plus VAT for five to eight leaseholds. Properties with nine or more leaseholds are subject to individual quotation. Additionally, a fee of 15% plus Vat is charged on ground rents, fees and insurance premiums collected.
Contact:
WH Breading and Son Ltd
PO Box 93
Whitstable
KENT
CT5 3GH
Tel: 01227 780022
Fax: 01227 452297
[Back to Part 6 – Low value homes – bankruptcy only] [On to Part 8 – Reviewing and dealing with a property at review stage – including the obtaining of a charging order]