Social Housing Law Update
Tenant insolvency and possession proceedings
On 15 July 2011 the Court of Appeal handed down its judgement in the combined case of Sharples v Places for People Homes Limited; Godfrey v A2 Dominion Homes Limited [2011]. The case raised important issues of how a tenant’s insolvency would affect the right of a landlord to apply for a possession order.
The facts
Ms Sharples was made bankrupt in May 2009 and four days later had a possession order made against her on grounds of rent arrears. Mr Godfrey was made subject to a Debt Relief Order (“DRO”) in April 2009 and had a conditional suspended possession order made against him in August of the same year. Both were assured tenants. They appealed against the making of the possession order – in essence arguing that the bankruptcy order and debt relief order prevented the court from making an order for possession based on rent arrears.
Insolvency Law
Section 286 of the Insolvency Act 1986 precludes any creditor from having “any remedy against the property or person of the bankrupt” in respect of a debt once a bankruptcy order has been made. Similarly, the DRO regime states that a creditor has “no remedy in respect of the debt” (section 251G of the Insolvency Act 1986)
The arguments
Sharples and Godfrey argued that the Insolvency Act 1986 precluded the making of a possession order as it would be granting a remedy in respect of the debt covered by the bankruptcy and that their tenancies were protected as part of their estate. Both Sharples and Godfrey argued that as the bankruptcy order/ DRO was in place, the landlords could not make out Grounds 8, 10 and 11 of the Housing Act 1988 as the rent was not “lawfully due”. In support her appeal, Sharples put forward the policy arguments that (a) section 285 was intended to protect the interests of creditors to ensure no one creditor gained an improper advantage over the other and (b) the courts should interpret the legislation so as to keep tenants in their homes. In support her appeal, Sharples put forward the policy arguments that (a) section 285 was intended to protect the interests of creditors to ensure no one creditor gained an improper advantage over the other and (b) the courts should interpret the legislation so as to keep tenants in their homes.
The Court of Appeal decision
In dismissing the tenants’ appeals, the Court of Appeal held that an order for possession on grounds of rent arrears for a property which is subject to a tenancy is not a remedy in respect of that debt within the meaning of the bankruptcy or DRO provisions of the Insolvency Act 1985. The court confirmed that this would be so whether the possession order was an outright order or a suspended order. The Court of Appeal stated that at a possession hearing where a tenant is subject to a bankruptcy order or a DRO the court cannot make an order for the payment of the rent arrears nor a possession order suspended on conditional payment of those arrears. The court made it clear, however, that the possession order may be suspended on terms that the tenant pay current rent and any other arrears which are not subject to the bankruptcy or DRO.
Commentary
The outcome of this case was as expected by most practitioners and commentators. To have found in favour of the tenants in these cases would have created the absurd situation where a landlord would be prevented from evicting a bankrupt tenant or tenant subject to a DRO, giving those tenants an unfair advantage over other tenants in rent arrears. From a policy perspective, it would have made it appealing for tenants to seek a bankruptcy order to DRO to take advantage of the protection it would offer. What the cases means in practice is that everything continues as normal Landlords seeking suspended possession orders should ensure that they know which arrears fall within the protection of a bankruptcy order or DRO before going to court.
Government consultation on squatting
On 13 July 2011 the Ministry of Justice released a consultation paper reviewing the law on squatting. The paper appears to have been triggered by concerns highlighted by the media about the impact of squatting on landlords and neighbourhoods.
The papers raises the option of criminalising squatting as well as an option for strengthening existing defences and civil mechanisms in relation to squatting. The papers considers whether if existing criminal offences such as criminal damage and burglary were enforced whether this would assist with reducing the problem of squatting.
The consultation does coincide with the new guidance which has been published on evicting squatters which was published by the DCLG and Ministry of Justice recently. To view the new guidance visit http://www.communities.gov.uk/documents/housing/pdf/1762615.pdf
