Suing a Bankrupt Tenant - Recovering the property PrintPdfClose »

10/08/2011
When a person is made bankrupt, or has a debt relief order (DRO) made, their creditors must all receive equal treatment. Bankruptcy is a well known procedure and, in effect, allows a debtor’s slate to be wiped clean after a year. A DRO can be granted where the debt is less than £15,000 in total and the debtor has less than £300 in assets and less than £50 ‘surplus income’ per month. Under a DRO, the creditor cannot pursue the debt and it is written off after a year. DROs are less formal than bankruptcy.

Recently, the Court of Appeal heard two conjoined cases. These involved a person who was bankrupt and another person who had a DRO, and their respective landlords.

In each case, the landlord was seeking possession of a property let by the tenant. The grounds for seeking possession were non-payment of rent.

The tenants argued that their landlords were not in reality seeking possession, but seeking to make them pay their rent arrears – in effect obtaining preferential treatment compared with other creditors.

The landlords argued that they wished to recover their properties so that they could be re-let and create an income for them.

The Court ruled that a landlord can seek to recover its property even though the overdue rent is one of the liabilities included in the bankruptcy or DRO. The Court cannot order the tenant to pay the arrears. It can, however, order that the possession order is suspended for a period dependent on the payment of the arrears.

This decision will come as a great relief to landlords. If it had gone the other way, their power to obtain possession orders against tenants who are the subject of DROs or who are bankrupt might have been severely curtailed.

If you have any questions in relation to this article, please contact:

 

Tracey Pearce

Partner
T: 01626 202414
Email Me

Justin Osborne

Partner
T: 01626 202408
Email Me