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Insolvency: Obtaining possession

Can a bankruptcy order preclude the making of a possession order on the ground of rent arrears in respect of a property let on an assured tenancy? In short, no, as has recently been decided in Sharples v Places for People Homes Limited [2011] Civ EWCA 813.

S was an assured tenant who fell behind with her rent. When she was 8 weeks in arrears, her landlord began proceedings on grounds 8, 10 and 11 Schedule 2 Housing Act 1988. At the first hearing, the claim was adjourned on terms of current rent plus £25.85 per week in respect of the arrears. Arrears continued to accrue and the hearing was reinstated. Prior to the second hearing Miss Sharples was adjudged bankrupt. At the second hearing the judge made an order for possession, but refused to make an order for rent arrears as they were a debt provable in the bankruptcy, holding that the Insolvency Act ("IA") s 285(3) did not preclude the making of a possession order. The IA s 285(3) states that: "After the making of a bankruptcy order no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall (a) have any remedy against the property or person of the bankrupt in respect of that debt."

The Court of Appeal held that the grant of a tenancy created a property interest in the tenant which was an encumbrance on the landlord's title. A possession order was a remedy which restored to the landlord full proprietary rights. Failing to pay rent was a breach of a contractual obligation. Neither forfeiture, a possession order, recovery of possession by the landlord, nor a bankruptcy order, eliminated the personal indebtedness constituted by rent arrears.

It followed as a matter of general principle that an order for possession of a property, whether let under an ordinary contractual tenancy or a secure or an assured tenancy, was not a remedy "in respect of" the debt represented by the rent arrears within IA s.285(3)(a). It was immaterial whether possession was ordered before or after bankruptcy. IA s.285(3)(a) did not preclude the making of a possession order on the ground of rent arrears.

Philippa Seal / 1st Oct 2011


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