Clearing your debts
The Court of Appeal has given some clarification on claiming possession against an assured tenant subject to a bankruptcy order or debt relief order. Jason Hobday explains
On 15 July 2011 the Court of Appeal helpfully cleared up uncertainty surrounding possession claims based upon arrears of rent against assured tenants where there is a bankruptcy order or debt relief order.
Such uncertainty had stemmed from the conflicting interpretations as to the Insolvency Act 1986, in particular, the provisions (section 285 (3) and section 251G (2) and (3) respectively) which prohibit a creditor pursuing a remedy in respect of a debt which has become provable in the bankruptcy or contained in the DRO.
In this case the Court of Appeal heard conjoined appeals, the first of which was brought by Christina Sharples against the order of a Circuit Judge upholding the possession order granted in favour of her landlord Places for People Homes Limited. Ms Sharples had been adjudged bankrupt on 14 May 2009, and notwithstanding this the Salford County Court granted an outright possession order based upon ground 8 on 19 May 2009.
The second conjoined appeal was that of Mr Stephen Godfrey, appealing against the order of a circuit judge dismissing his appeal against the suspended possession order granted in favour of his landlord A2 Dominion Homes Limited. Mr Godfrey had obtained a DRO (which included the rent arrears) after the ground 10 possession claim had been commenced, but before the first possession hearing. Despite the inclusion of the rent arrears in the DRO the judge at the subsequent possession hearing granted a possession order, and suspended enforcement of the order upon terms that Mr Godfrey was to pay £5.00 per week towards the arrears and costs.
In both matters the tenants argued that the pursuance of the possession order was a remedy in respect of the debt. In the Godfrey matter there was also the added complication that the tenant had in fact also been ordered to pay the arrears off by weekly instalments thereby putting A2 Dominion in a better position as compared to the other creditors with debts contained in the DRO.
In both matters the Court of Appeal considered that a possession claim was not a remedy in respect of the debt, as a possession claim was not ultimately intended to ensure payment of the rent arrears, but was instead aimed at ensuring the property was recovered by the landlord. The Court also confirmed that it was possible to grant a suspended possession order in circumstances where the claim is pursued on a discretionary ground, but that the terms of suspension should only deal with the payment of future rent and must not require payment towards the arrears if these are provable in the bankruptcy or are contained in the DRO.
Social landlords seeking to recover possession against assured tenants due to rent arrears are commonly finding that the arrears have been included within a DRO, or are provable in the bankruptcy. This is generally because the rent arrears make up a large part of the tenant’s overall debt.
This judgment confirms that a landlord will not be prohibited from seeking an order for possession, or where their policy requires, seeking an SPO.
Where the possession claim is to be issued after the tenant has been adjudged bankrupt, or a DRO has been made, landlords must avoid including a claim for money judgment for the arrears that are contained in the DRO/ provable in the bankruptcy, as this would be considered to be a remedy in respect of the debt, something which is prohibited under the Insolvency Act 1986. Landlords would however still be entitled to seek money judgment for any arrears that accrued after the making of the bankruptcy order/ DRO.
Where possession proceedings have been commenced before the tenant is adjudged bankrupt/ a DRO is made, it is probable that the possession claim will also be seeking money judgment for the arrears. Where this is the case, in order to ensure the court does not stay the claim because it is partially seeking a remedy in respect of the debt, the claimant landlord should at the first opportunity address the court on this point to confirm that money judgment is no longer sought.
Importantly, this judgment has clarified that the court may, where the ground for possession affords discretion, suspend the possession order on terms. Whilst such terms cannot require payment off any arrears provable in the bankruptcy or contained in the DRO, the tenant can however be order to pay by weekly instalments any arrears that have accrued since the bankruptcy order/ DRO, as well as future rent payments.
Jason Hobday is a partner at Tozers email@example.com