Recovery of possession - Tenant's insolvency

Sharples and another v Places for People Homes Ltd: Court of Appeal, Civil Division (Lords Justice Mummery, Etherton, Mr Justice Wilson): 15 July 2011

The two claims involved common issues about the effect of a person’s insolvency on the right of a landlord to obtain an order for possession of a dwelling let on an assured tenancy, on the ground of rent arrears. In the first claim, the defendant, S, fell into arrears on her rent, and was adjudged bankrupt in May 2009.

Her landlord issued proceedings seeking possession. S submitted that as the rent arrears were provable in her bankruptcy, the court was prevented from making an order for possession against her by virtue of s 285(3) of the Insolvency Act 1986 (the Act). That section precluded any creditor of the bankrupt from taking action against the bankrupt in respect of that debt.

The judge refused to make an order for payment of the rent arrears since they were a debt provable in the bankruptcy, but held that s 285(3) of the Act did not preclude the making of an order for possession. In the second claim, the defendant, G, fell into arrears on his rent, and a debt relief order (DRO) was made.

When a DRO was made, s 251G of the Act imposed a moratorium which prevented a creditor from taking action in respect of the debt without the permission of the court. G contended that the proceedings for possession, instituted by his landlord, should be stayed in view of the DRO. The judge rejected that argument, and made an order for possession, directing that the order was not to be enforced so long as G paid his landlord £5 per week in respect of rent arrears and costs. Both S and G appealed, and their appeals were heard together.

The issue in the first case was whether the making of a possession order in respect of a dwelling let on an assured tenancy was precluded, following the making of a bankruptcy order against the tenant, by s 285(3)(a) of the Act. S submitted first that s 285 of the 1986 Act was intended to protect the interests of one unsecured creditor against another, and granting the order for possession would give one creditor an improper advantage.

Secondly, S submitted that the legislative policy was to enable a tenant under an assured tenancy or a secure tenancy to remain in their home. Such tenancies were excluded from the bankrupt’s estate, but, by virtue of s 285(b) were nevertheless property to which s 285 applied. G adopted S’s submissions, and further contended that s 251G(2) of the Act prohibited the making of the order, and further that on any footing, the order should not have been made conditional on payment of arrears; it should have been made conditional only on payment of current rent.

S’s appeal would be dismissed. G’s appeal would be allowed in part.

(1) The grant of a tenancy, including an assured tenancy, created a property interest in the tenant which was an incumbrance on the landlord’s title. An order for possession was a remedy which restored to the landlord full proprietary rights, including rights of occupation and letting. The failure to pay rent was a breach of a contractual obligation.

Neither forfeiture, nor a court order for possession, nor recovery of possession by the landlord, nor an order for bankruptcy, eliminated the personal indebtedness constituted by the rent arrears. It followed, as a matter of general principle, that an order for possession of property, whether let under an ordinary contractual tenancy or a secure or assured tenancy, was not a remedy ‘in respect of’ the debt represented by the rent arrears which gave the landlord an entitlement to the order for possession (see [63] of the judgment).

Ezekiel v Orakpo [1976] 3 All ER 659 considered; Thompson v Elmbridge Borough Council [1987] LS Gaz R 2456 considered; Smith (a bankrupt) v Braintree District Council [1989] 3 All ER 897 considered; Razzaq v Pala [1997] BPIR 726 considered; Greenwich London Borough Council v Regan [1996] EGCS 15 considered; Harlow District Council v Hall [2006] All ER (D) 393 (Feb) considered.

(2) It was settled law that s 285(3)(b) of the Act was implicitly limited to legal proceedings against the bankrupt ‘in respect of that debt’; it was qualified in the same way as s 285(3)(a) of the Act. Accordingly, proceedings for an order for possession of property subject to a tenancy, including an assured tenancy, on the ground of rent arrears, in which no claim was made for arrears provable in the tenant’s bankruptcy, were not subject to the automatic stay in s 285(3)(b) of the Act.

Neither was an order for possession of property subject to a tenancy, including an assured tenancy, on the ground of arrears of rent, which was the subject of the tenant’s DRO, a ‘remedy in respect of the debt’ within the meaning of s 251G(2)(a) of the Act, whether the order was an outright or conditional suspended order for possession. Proceedings for possession of property subject to an assured tenancy on the ground of rent arrears, which were provable in the tenant’s bankruptcy or were the subject of the tenant’s DRO, should not normally be stayed under s 285(1) or (2) or s 251G(3) of the Act.

On the hearing of such proceedings, no order could be made for payment of arrears, nor should a suspended order for possession be made conditional on payment of such arrears.

Consequently, although the judge had made no error in S's case, the judge in G’s case had erred in making the order conditional on the payment of arrears (see [80], [84], [97] of the judgment).

The order in G's case would be varied deleting the order for payment of the rent arrears, and confining the weekly instalments to costs (see [97] of the judgment).

Edward Bartley Jones QC (instructed by Whiteheads) for the first claimant. Jonathan Manning and Victoria Osler (instructed by Owen White) for the second claimant. Jan Luba QC and Ben McCormack (instructed by Glaisyers) for S. Kerry Bretherton (instructed by Turpin and Miller) for G.