PART 4
September 2008
EFFECT OF DISCLAIMER
34.68 Disclaimer presumed valid/effective
Any disclaimer of property by the official receiver as liquidator/trustee is presumed valid and effective, unless it can be shown that he/she is in breach of his/her duty in respect of giving notice of disclaimer (see paragraphs 34.57 to 34.60). [note 1] [note 2] [note 3] [note 4] [note 5]
34.69 Effect of disclaimer – general
(Amended February 2014)
A disclaimer operates so at to determine, as from the date of the disclaimer, the rights, interests and liabilities of the insolvent in or in respect of the property disclaimed (in this context “determine” means “to bring to an end”) and discharges the trustee from any personal liability in respect of that property as from the commencement of his/her trusteeship. The rights and liabilities of any other person are not affected, except so far as is necessary to release the insolvent estate, the insolvent and the trustee from any liability [note 6][note 7]. When the disclaimer becomes effective (see paragraphs 34.70 to 34.73) the official receiver should cancel any insurance policy he/she has obtained in accordance with the advice in paragraph 49.27B.
34.70 Effective date of a disclaimer – general rule
Amended April 2010
Pre 6 April 2010 petition cases:
In a pre 6 April 2010 petition case, a disclaimer will generally be effective as from the date the notice is endorsed by the court [note 8] [note 9].
Post 6 April 2010 petition cases:
In a post 6 April 2010 petition case, the disclaimer will generally be effective from the date the notice is authenticated by the official receiver [note 9a] [note 9b].
There are, though, exceptions to this general rule, and these are explained in paragraph 34.71.
34.71 Effective date of disclaimer – exceptions to general rule
Where the disclaimer is in respect of a property held under a lease, or of any dwelling house [note 10], the disclaimer will not take effect unless every person who is a mortgagee or underlessee (for leased properties) [note 11] [note 12] and/or every person in occupation of or claiming a right to occupy the property (for dwelling houses) [note 13] has been served with the notice of disclaimer (see paragraph 34.52).
Further, in these circumstances, the disclaimer will not take effect until 14 days after the day on which the last notice of disclaimer was served on an interested person (see paragraph 34.57), unless an application is made for a vesting order (see paragraph 34.88) [note 14] [note 15] [note 16]. In the circumstances where an application is made for a vesting order, the effective date of the disclaimer will be decided by the court when dealing with that application [note 17] [note 18].
An application for a vesting order made after the 14-day period referred to above does not act to suspend the disclaimer.
34.72 Purpose of delay in effective date of disclaimer.
The reason for the delay between the date of the service of the notice of disclaimer and the date that it takes effect (see paragraph 34.70) is to ensure that those who may have an interest in the property have an opportunity to takes steps to protect that interest. An example of this would be where a fellow occupier of a leased property may be adversely affected by the early termination of the insolvent’s interest in that property. In these circumstances, the occupier would have the opportunity to take over the lease and, perhaps, avoid an eviction.
34.73 Effective date where delay
Amended April 2010
Where the effect of the disclaimer is delayed and there has been no application for a vesting order within the 14 day period (see paragraph 34.71), the disclaimer will retrospectively take effect from the date that it is authenticated by the official receiver (or for pre 6 April 2010 petition cases, from the date that it is endorsed by the court).
34.74 Loss or damage resulting from the issue of a disclaimer
Any person suffering loss or damage in consequence of the operation of a disclaimer is deemed to be a creditor of the insolvent estate to the extent of the loss or damage suffered and may prove in the estate for the resultant loss. Examples of this would be for outstanding and/or future rent under a lease or the cost of disposing of disclaimed hazardous waste [note 19] [note 20].
34.75 Valuation of loss or damage resulting from the issue
The court has held [note 21] that the appropriate basis on which to calculate the amount due to the landlord would be to calculate the value of any sums payable by the tenant to which the landlord would have been entitled during the residue of the term of the lease (allowing for a reduction for accelerated payment), then to give credit to the landlord for the value of what was left to him/her after the disclaimer (for example, the market value of the residue of the lease) and, finally, add or subtract an amount depending on the state in which the tenant had left the property. Additionally, some consideration must be given to the effect of any vesting order (see Part 5) [note 22] [note 23].
34.76 Liability of sureties or previous tenants
Where a landlord has suffered a loss as a consequence of the operation of a disclaimer, this loss may be claimable from sureties of the insolvent or former tenants of the property [note 24]. This may be of particular concern where the official receiver is dealing with the affairs of an insolvent that is a surety or former tenant in relation to a property subject to a disclaimer (see paragraph 34.12).
34.77 Effect of disclaimer on leased property
Where an original lease held in the sole name of the insolvent is disclaimed the effect is to determine (end) the lease, whereas if an assigned lease is disclaimed, it reverts to the assignor (see paragraph 34.12). Where the lease is jointly-held then the legal title to the lease would remain with the joint tenant.
34.78 Effect of a disclaimer on a leasehold with sitting sub-tenants
As explained at paragraph 34.69, the effect of a disclaimer is to end the insolvent’s interest in the disclaimed property and, therefore, any sub-leases created as a result of the insolvent’s interest in the lease would also be ended. However, despite what may be thought, this does not end the sub-tenant’s right to remain in possession during the term granted by the sub-lease, so long as the terms of the head-lease are complied with. The landlord does, though, have a right to re-enter the property if the terms of the head-lease are not complied with [note 25].
34.79 Effect of disclaimer on freehold property - jointly owned
The liquidator’s/trustee’s interest in a jointly-owned freehold property is in the beneficial interest in the property, rather than in the legal title to the property itself (see paragraph 31.3.4 for further information on this). As outlined at paragraph 34.69 the effect of a disclaimer is to determine (end) the insolvent’s interest in the property – thereby, effectively leaving the interest without an owner. Assuming no vesting order is made (see Part 5), the interest would become bona vacantia (see paragraph 38.29), and would vest in the Crown. Property that is bona vacantia is dealt with by the Treasury Solicitor (http://www.bonavacantia.gov.uk/). The Treasury Solicitor is not required, as a matter of law, to assert a claim to the property, which is, or may be, bona vacantia.
Both bona vacantia property and property under escheat (see paragraph 34.80) in the Duchies of Cornwall (which covers the modern county of Cornwall) and Lancaster (which covers the modern county of Lancashire and parts of Merseyside, Greater Manchester, Cheshire and Cumbria) falls to the respective Duchy. The solicitor to these Duchies is Farrer & Co (http://www.farrer.co.uk/Default.htmx?sID=1).
34.80 Effect of disclaimer on freehold property – solely owned
Where the liquidator’s/trustee’s interest is in a solely-owned property then that interest is in the legal title to the property itself. The effect of a disclaimer ending this interest (see paragraph 34.69) would leave the property without an owner. Where freehold property is left without an owner it passes at common law, by escheat (a law dating back to feudal times making ownerless land the property of the Lord holding the superior interest, which, in modern times, tends to be the Sovereign), to the Crown [note 26]. The solicitors who deal with these matters on behalf of the Crown are Burgess Salmon http://www.burges-salmon.com/.
Both bona vacantia property (see paragraph 34.79) and property under escheat in the Duchies of Cornwall (which covers the modern county of Cornwall) and Lancaster (which covers the modern county of Lancashire and parts of Merseyside, Greater Manchester, Cheshire and Cumbria) falls to the respective Duchy. The solicitor to these Duchies is Farrer & Co (http://www.farrer.co.uk/Default.htmx?sID=1).
34.81 Effect of disclaimer on fixtures
As regards fixtures, the general principle in law is that fixtures that are permanently attached to the building pass with the lease. An exception to this general rule would be in respect of trade fixtures (those fixtures that have been fixed for the purpose of trade or manufacture). Trade fixtures, and all loose fittings, pass too the estate. Therefore, a disclaimer of a lease would also cover those fixtures that pass with the lease.
The court may, however, make a special order as to fixtures, tenant’s improvements and other relevant matters where there has been an application for a vesting order (see paragraph 34.88) [note 27] [note 28].
Further details regarding fixtures can be found in paragraphs 31.10.16 and 31.10.17.
34.82 Effect of disclaimer on shares
Where the official issues a disclaimer on partly paid shares, it may be necessary to admit a proof for the amount of any unpaid calls, and for an estimated amount in respect of the contingent liability for uncalled capital.
34.83 Effect of disclaimer on surplus in a lease or other property
Generally, the ending of the insolvent’s interest in property by virtue of a disclaimer would also, obviously, end any interest in the realisable value, or surplus realisable value of the property.
It has been held, however, that the court may make an order vesting surplus proceeds in the estate where a vesting order is made. See paragraph 34.91 for further information on this.
It is likely that any rent deposit held by a landlord following the disclaimer will be used to off-set outstanding rent. If not, the question of ownership of the deposit may rest in the wording of the lease – for example, the lease may state that the deposit is forfeit in the event of the issue of a disclaimer, or the insolvency of the tenant. Assuming neither of these options settle the matter, then the deposit would become bona vacantia (see paragraph 34.79).
[Back to Part 3 – Procedure for disclaiming] [On to Part 5 – Vesting orders]