31.11.209 Company in liquidation as landlord of a tenanted property
In company cases, assets do not vest in the liquidator unless a specific order is sought from the court vesting the assets in the liquidator [note 1]. This is an extremely rare occurrence. The assets remain as property of the company (in liquidation), and so the official receiver is not directly the landlord of the property, the company remains as such. As the official receiver is the liquidator of the company, it is prudent to act appropriately to protect him/her from any residual liability as ultimately, he/she will be responsible for the company’s actions. When giving the tenant written notice of a change of landlord (Annex K or L) [note 2], the letter should state that the company (in liquidation) is still landlord, and that the official receiver (by name) is the liquidator of the company and has the powers of liquidator as provided by legislation to deal with the company’s assets [note 3]. The official receiver, as liquidator, should ensure that the company, as landlord, complies with the duties and obligations as landlord or otherwise seeks to end the tenancy agreement (see Parts 2 and 3).
A company that owns property is not suitable for early dissolution and indeed, the official receiver will not be able to apply for his/her release as liquidator until any property owned by the company is sold (or otherwise dealt with) and, thereafter, the proceeds of sale dealt with (see Chapter 36). Where a receiver is appointed, or the mortgagee takes possession, dissolution should be deferred to prevent the property becoming bona vacantia (see Chapter 38, Parts 5 and 7).
The official receiver becomes landlord of a solely owned tenanted property when he/she is appointed as trustee (see paragraph 31.11.66). Provided notice has been served on the tenant notifying him/her of the change of landlord (see paragraph 31.11.69) [note 2], the tenant is obliged to continue paying rent and complying with the terms of the tenancy agreement.
Where a tenant defaults in the payment of rent to the official receiver, a letter should be sent to the tenant chasing payment and attempting to ascertain the reasons for non payment (if agents are not being used to deal with this matter). Where the tenant continues to default on rental payments, without reasonable explanation, a further letter should be sent to the tenant warning of the consequences of failing to pay the rent (see paragraph 31.11.212) and the tenant should be advised to seek legal advice if they are in any doubt as to the position of the official receiver/company as their landlord.
If the tenant continues to fail to cooperate after a letter has been sent chasing unpaid rent, then the official receiver, as trustee and landlord, should consider taking appropriate enforcement action, depending on the reasons for the default in payment (see paragraph 31.11.213 below).
Landlords have a right to distrain for unpaid rent under the Law of Distress Amendment Act 1908. The right to distrain is only available to the person who is legally entitled to the landlord’s interest both at the time the rent falls due and at the time of the distress. Under common law the right is limited to distraint for rent. Any sum treated as rent in the lease may be distrained for e.g. service charges (see paragraphs 9.6 - 9.8). The official receiver is likely to require specialist advice before commencing such action.
Where a tenant defaults in the payment of rent, it may be as a consequence of a change in circumstances of the tenant since the date the tenancy agreement was signed (e.g. the tenant is no longer in employment). Where a tenant notifies the official receiver of a change in circumstance, and subsequent difficulty in meeting rental payments, the official receiver will need to take these reasons into consideration before commencing any enforcement action. See Part 3 for information on dealing with the disposal or ending of an AST.
Where the bankrupt is failing to cooperate with the official receiver, and continues to attempt to collect rent from a tenant, the official receiver should take appropriate enforcement action. The bankrupt has a duty to deliver possession of his/her estate to the official receiver [note 6], failure to do so is contempt of court. A public examination of the bankrupt and/or suspension of the bankrupt’s discharge from bankruptcy should be considered to enforce cooperation (see Chapter 13 for further guidance on enforcing the bankrupt’s co-operation).
If the bankrupt is threatening or intimidating a tenant, the official receiver should report the bankrupt’s conduct to the police. Consideration should also be given to changing the locks to protect the tenant from the bankrupt entering the property without authority.
Where the tenant pays rent directly to the mortgagee whilst the official receiver is entitled to receive that rent, the official receiver can recover the rent directly from the mortgagee [note 7] who are not entitled to keep the rent unless they appoint a receiver or take possession of the property. By attempting to collect the rent (back) from the mortgagee, the official receiver may prompt the mortgagee into taking action to appoint a receiver so that the mortgagee can legitimately collect the future rents from the tenant.
Where the bankrupt solely owns property but the tenancy agreement is in joint names, how the official receiver treats that tenancy depends on the intentions of the parties at the time the tenancy was created, and how the tenancy has been dealt with by both parties. Enquiries need to be made by the official receiver to establish why the tenancy agreement is in joint names, and evidence sought to back up those claims.
When deciding how to treat a tenancy agreement, the official receiver should consider what the rental income received so far has been used for. If the rental monies have been used solely to discharge a debt in the bankrupt’s name (e.g. the mortgage loan is in the bankrupt’s name and the rent has historically been used to pay the mortgage loan), and the monies were not used by both parties then the official receiver should give consideration to treating the tenancy as though it is solely owned by the bankrupt (i.e. it will vest in the official receiver as trustee) and all the rent, less expenses, should be collected. Other factors will need to be taken into consideration and if the non bankrupt joint tenancy holder contributed to the property (e.g. by providing a significant deposit for the property’s purchase or by paying for a significant improvement to the property), this may give weight to accepting the tenancy as a joint tenancy as the third party would be able to claim a beneficial interest in the property (see paragraph 31.11.218 and Chapter 31.3, Part 4).
Where the property is solely owned by the bankrupt, but the tenancy agreement is in joint names with another, it is possible that the non bankrupt joint tenancy holder has a beneficial interest in the property.
The official receiver will need to investigate any claim to a beneficial interest in the property from the joint tenancy holder in considering whether to accept that the tenancy agreement as a joint tenancy agreement or a sole agreement in the bankrupt’s name. If there is a valid reason for the third party interest, for example, the third party has a beneficial interest in the property from contributing to the deposit paid on the purchase of the property, then it may be considered to be a joint tenancy and the official receiver should treat the tenancy as a jointly owned tenancy agreement and only seek to collect the bankrupt’s share of the rental income less allowable expenses (usually 50% or other percentage as evidenced by the parties to the official receiver), see paragraph 31.11.129. Expenses would not include payment of any of the mortgage loan if the mortgage loan is in the bankrupt’s sole name, see paragraph 31.11.35.
If there is no claim to a beneficial interest by the joint tenancy owner, the official receiver should question why the tenancy was placed in joint names and, if there is no valid reason, treat the tenancy agreement as though it has vested fully in the official receiver as trustee. Where this is the case, the official receiver, as trustee and landlord, should seek to collect the full rent less allowable expenses notifying the other joint tenancy owner as appropriate (see paragraph 31.11.129).
If the official receiver believes the tenancy agreement is a solely owned tenancy agreement, then he/she will need to give the third party, and the bankrupt, written notice of the official receiver’s decision to treat the tenancy agreement as if it were in the sole name of the bankrupt and the consequences of the decision.
Where a tenancy agreement, on a property solely owned by a bankrupt, is created in the sole name of a third party, whilst it is not likely to be a legal lease (tenancy), it is probably what is known as an equitable lease and the tenant is likely to be considered by the courts to have a valid tenancy agreement.
Where a tenancy is created in the sole name of a third party, it may only be legally binding when that third party owns 100% of the beneficial interest in the property and the owner of the legal title simply holds the property on trust for that third party. If this is the case, the official receiver should treat the property as though the property is held in trust and consequently it would not form part of the bankruptcy estate. Legal advice may be needed to verify the third party’s claim to 100% of the beneficial interest. Also see paragraph 31.11.223 on tenancy by estoppel.
Such a tenancy is unlikely to be legally binding on any mortgagee on the property unless the consent of the mortgagee to the tenancy agreement was obtained prior to it being granted.
The official receiver should seek to ascertain the reason why a tenancy agreement on a solely owned property was placed in the name of a third party. The factors discussed in paragraphs 31.11.216 to 31.11.219 should be considered. Where no underlying reason can be established for the tenancy agreement to have been placed in the name of a third party, the official receiver should inform the third party, as trustee, that in his/her opinion the tenancy agreement vests in the bankruptcy estate and that as trustee he/she will seek to enforce the rights and obligations as landlord under the terms of the tenancy agreement (see Part 2). The official receiver should treat the tenancy agreement as though it was created in the bankrupt’s sole name and so the official receiver should write to the tenant informing him/her that the tenancy vests in the official receiver as trustee and that he/she is now landlord, see paragraph 31.11.114.
Where a bankrupt creates a new tenancy agreement after a bankruptcy order is made, if it is created prior to a trustee being appointed, the tenancy agreement is legally binding on the trustee. This is because the legal title to the property remains with the bankrupt until a trustee is appointed [note 8].
Where the bankrupt disposes of property between the presentation of the bankruptcy petition and the vesting of the estate in the trustee, this disposition is void unless made with the consent of, or ratified by, the court [note 9]. It is not considered that the creation of a new tenancy agreement, which is in itself a property right, is a disposition of property as the underlying reversionary interest will still vest in the trustee upon his/her appointment, as will the newly created interest in the tenancy agreement. In these situations, the official receiver should deal with the tenancy as if it had been created prior to the bankruptcy order (see Parts 1 and 2). Where a tenancy agreement is signed prior to the date of the bankruptcy order, it is considered to be binding on the official receiver when he/she becomes trustee. Consideration should be given by the official receiver, as trustee, as to whether the transaction has been made at an undervalue (see Chapter 31.4A)
Where a bankrupt creates a new tenancy agreement after a bankruptcy order is made and after a trustee has been appointed, the tenancy agreement has no legal standing. This is because the legal title to the property vests in the trustee on appointment and the bankrupt had no legal title to the property on the date the tenancy was created.
The tenant does not have a legal lease (tenancy) but has a tenancy by what is known as estoppel with the bankrupt, as the tenancy was granted by the bankrupt without any legal interest in the property. A tenancy by estoppel is a valid tenancy agreement between the bankrupt and the tenant, but only comes into force when one of the parties seeks to default on the agreement on the basis that the landlord had no legal estate at the date of creation of the tenancy [note 10]. A tenancy agreement by estoppel is not binding on the official receiver as trustee.
As soon as the official receiver becomes aware of such a tenancy he/she should attempt to ascertain full details of the agreement.
Where a tenancy agreement has been created post bankruptcy, but prior to a trustee being appointed, see paragraph 31.11.222.
Although a tenancy agreement created by the bankrupt post the appointment of the official receiver as trustee is not legally binding on the official receiver, as trustee, the official receiver will need to take some action in relation to the agreement. The official receiver has various options and will need to decide how to proceed on a property-by-property basis, depending on how cooperative the tenant and bankrupt are, and whether the property is onerous. As the bankrupt has no legal interest in the property, the official receiver should write to the bankrupt informing him/her that no further contact should be made with the tenant.
The official receiver can either:
(a) Acknowledge the tenancy by writing to the tenant in accordance with Part 2 of this chapter and take on the role of landlord and obtain the rental income for the benefit of the insolvent estate.
(b) Disclaim the reversionary interest and tenancy if it is onerous (see Part 3, paragraphs 31.11.153 to 31.11.169).
(c) Ask the tenant to leave as he/she does not have a legally binding tenancy agreement against the official receiver. See Part 3 on vacant property. If the tenant refuses to leave, court action is likely to be required to evict the tenant.
The official receiver should inform the mortgagee of the position immediately and ask whether they intend to take an action in relation to the tenancy agreement.
By default, as the property vests in the official receiver as trustee, he/she may become ultimately liable for any claims that the occupier may make for injury. Public liability insurance should therefore be obtained as soon as possible.
The official receiver should obtain details from the tenant/bankrupt as to any deposit paid. Where possible the official receiver should locate the deposit ensure it is protected (see paragraphs 31.11.41 to 31.52).
Where the official receiver decides to acknowledge a tenancy agreement created after his/her appointment as trustee and become landlord, action should be taken to ensure the bankrupt is informed in writing of the official receiver’s decision
The official receiver should inform the bankrupt of the decision to acknowledge the tenancy, that he/she is now landlord and that the bankrupt is not entitled to collect any rent due under the terms of the agreement.
The official receiver should write to the tenant informing him/her of the decision to adopt the tenancy agreement. The official receiver will become landlord from the date notice is served on the tenant. The letter should request that the next payment of rent is sent to the official receiver on the next date payment is due.
The official receiver may be informed that the bankrupt has made an application to court for an annulment of the bankruptcy order (see Chapter 6A). Where the official receiver is trustee and landlord he/she will need to consider, on a property by property basis, what action needs to be taking pending the outcome of the hearing .
Where a stay of advertisement (Chapter 6, Part 2) is ordered pending the annulment hearing, the official receiver should ask the bankrupt to hold the rent to the order of the trustee pending the outcome of the hearing. If the official receiver feels the stay of advertisement will jeopardise the collection of rent, he/she can apply to the court for directions [note 11] (see paragraph 6.26).
Since 6 April 2006 mandatory licensing of any ‘House of Multiple Occupancy’ (HMO) came into force [note 12]. A building or part of a building is a HMO [note 13] if it meets one of the following conditions:
1) It meets the “standard test” which is;
a) it consists of one or more units of living accommodation not consisting of self contained flats,
b) the living accommodation is occupied by persons who do not form a single household,
c) the living accommodation is occupied by those persons as their only or main residence or they are to be treated as so occupying it,
d) their occupation of the living accommodation constitutes the only use of that accommodation,
e) rents are payable or other consideration is to be provided in respect of at least one of those persons’ occupation,
f) two or more of the households who occupy the living accommodation share one or more basic amenity or the living accommodation is lacking one or more basic amenity (a toilet, personal washing facilities or cooking facilities).
2) It meets the “self contained flat test”, i.e. it consists of a self contained flat, and meets conditions 1) a) to f) above.
3) It meets the “converted building test”, i.e. it is a converted building, and meets conditions 1) a) to e) above.
4) A HMO declaration is in force.
5) It is a converted block of flats, i.e. a building or part of a building which has been converted into and consists of self contained flats, if the building work undertaken did not comply with the appropriate building standards, and still does not comply with them, and less than two thirds of the self contained flats are owner occupied [note 14].
HMOs are subject to additional regulation such as maintenance of the common parts, a duty to display the landlord’s details in the common parts, and compulsory mains electric smoke alarms. The landlord needs to be a fit and proper person and there needs to be adequate amenities in place [note 15].
Where the official receiver is aware that the bankrupt is the landlord of a HMO, he/she needs to check that the proper licence is held, and the property complies with all requirements imposed by the local authority which regulates such licences.
When the official receiver becomes the landlord of a HMO, he/she will need to obtain an appropriate licence to continue managing that property and collect the rent [note 16]. The application should be made to the local authority and a fee is payable, which is set by each local authority. The fee is likely to be in the region of £300 to £500. Alternatively, when a licence is already held by the bankrupt, an application can be made to either vary that licence [note 17] or an application for a temporary exemption of three months [note 18] can be made if the property is likely to be handed to an insolvency practitioner or repossessed.
Failure to apply for a licence when needed is a criminal offence [note 19] subject to a maximum fine of £20,000. A maximum fine of £5,000 is also payable for any HMO regulation breached by a licence holder. If the official receiver is unable to verify that the accommodation complies with the licensing requirements, and there is unlikely to be sufficient income received to bring the property up to the compliance standard, then he/she will need to consider disclaiming his/her reversionary interest in the property and all the tenancy agreements (see Part 3, paragraphs 31.11.153 to 31.11.169). If a disclaimer is issued, it should be served on the local authority responsible for granting the HMO licences along with all other interested parties. See Chapter 34 on disclaimers.
In addition to all HMO’s requiring a licence, certain areas of the country which suffer from low housing demand and significant and persistent anti-social behaviour can also introduce local regulation requiring compulsory licensing of all private rented accommodation [note 20]. The local authorities which currently contain such areas are:
When the official receiver encounters a solely owned rented property in one of the areas referred to in paragraph 31.11.235, he/she will need to check that the bankrupt held an appropriate licence with the local authority and enquire whether the property complies with all requirements imposed by the local authority which regulates such licences.
The official receiver will need to obtain an appropriate licence to continue managing that property and collect the rent [note 21] The application should be made to the local authority and a fee is payable, which is set by each local authority. The fee is likely to be in the region of £300 to £500. Alternatively, when a licence is already held by the bankrupt, an application can be made to either vary that licence into his/her name [note 22], or an application for a temporary exemption of three months [note 23] can be made if the property is likely to be handed to an insolvency practitioner or repossessed.
Failure to apply for a licence when needed is a criminal offence [note 24] subject to a maximum fine of £20,000. A maximum fine of £5,000 is also payable for any regulation breached by a licence holder. If the official receiver is unable to verify that the accommodation complies with the licensing requirements, and there is unlikely to be sufficient income received to bring the property up to the compliance standard, then he/she will need to consider disclaiming his/her reversionary interest in the property and all the tenancy agreements. If a disclaimer is issued, it should be served on the local authority responsible for granting the selective landlord licences along with all other interested parties. See Chapter 34 for information on disclaimers.
[Back to Part 3 – Disposal or ending of a tenancy]