Landlords can continue with possession for rent arrears but cannot enforce payment in a bankruptcy and a debt relief order.
Summary
The Court of Appeal confirmed that a landlord cannot recover rent arrears included in bankruptcy or a DRO debt relief order (DRO). The court cannot make a suspended possession order conditional on repayment of those arrears.
The court held that taking possession of property is not a ‘remedy in respect of the debt’ and so is not prohibited by insolvency legislation. Possession is a mechanism for a landlord to recover their property.
Background
Sharples rented a property from Places for People Homes Ltd. She was made bankrupt with rent arrears included in the bankruptcy. A possession hearing took place due to the arrears. Sharples argued that the court could not grant possession because this would constitute a remedy in respect of a bankruptcy debt, which is prohibited by section 285 of the Insolvency Act 1986.
Godfrey rented a property from A2 Dominion Homes Ltd. He fell into arrears resulting in a claim for possession. Godfrey obtained a DRO with the rent arrears included. He similarly argued that possession would be prohibited by section 251G of the Insolvency Act 1986.
The court’s decision
In both cases, the court rejected the argument that a possession order for arrears constitutes a ‘remedy’ in respect of the debt under section 285 and section 251G Insolvency Act 1986. Possession action is a remedy to restore the landlord’s property rights.
The court also held that possession orders cannot be suspended on terms of repayment of arrears included in a bankruptcy or a DRO. Possession orders can still be suspended on terms of ongoing rent or arrears not included in insolvency.
Sharples’ appeal was dismissed and the possession order made against her remained in place. Godfrey’s appeal was partially dismissed, with his possession order being suspended on terms of only ongoing rent and costs.
Comments
Advisers should make clients aware that the court can still grant possession even if rent arrears are included in bankruptcy or a DRO.
A court can suspend possession for discretionary grounds, but it cannot suspend possession on condition of repayment of rent arrears included in a bankruptcy or DRO.
Clients entering a DRO can make repayments from their surplus income. The Official Receiver may allow bankrupt debtors to make voluntary payments.
Read more about debt relief orders and possession and possession proceedings against a bankrupt tenant on Shelter Legal.
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