Appeal court rules lawful bankrupt tenants’ evictions for rent arrears

Wednesday 3 August 2011 – new case law

This important Court of Appeal decision contains something for both social landlords and tenants. 

Social landlords will welcome the ruling that a tenant’s insolvency does not prevent possession orders on rent arrears grounds. And tenants will welcome the Court’s finding that possession claims cannot be used to recover rent arrears which are subject to bankruptcy or Debt Relief Order rules. 

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What happened? 

  • There were two tenants involved in this litigation. The first case concerned a Ms Sharples. She was an assured tenant of the social landlord Places for People Homes Limited. 

  • On 14 May 2009, Ms Sharples was made bankrupt (on her own bankruptcy petition). Ms Sharples was also in rent arrears. Those arrears were one of the debts provable in the bankruptcy. 

  • Places for People were also pursuing a possession claim against Ms Sharples. This was brought on the ‘mandatory’ rent arrears ground (ground 8) – at least 8 weeks’ rent unpaid at date of possession notice and at date of hearing. 

  • Places for People proved the necessary 8 weeks of rent arrears referred to in the mandatory ground for possession. And on 19 May 2009 the county court made a possession order against Ms Sharples. 

  • The second case concerned a Mr Godfrey. He was an assured tenant of A2 Dominion Homes Limited. He was in rent arrears. 

  • On 27 April 2009, Mr Godfrey was made the subject of a Debt Relief Order (DRO). This is a new legal mechanism which is designed to help low-income small-scale debtors ‘wipe the slate clean’. After one year, the debts included within the DRO are effectively cancelled. Mr Godfrey’s DRO included his rent arrears. 

  • Then, in August 2009, the county court considered Dominion Homes’ possession claim. The claim was brought on discretionary rent arrears grounds. So the court had a discretion as to whether to order possession even if the landlord proved, as it did, that the factual element of the ground for possession was made out. 

  • In Mr Godfrey’s case, the county court granted the landlord a possession order. But the order was suspended on conditions which required him to make regular payments towards his arrears. 

  • Both tenants challenged the possession orders made against them. They said that they were unlawful because they were based on debts (rent arrears) owed by persons who were subject to statutory insolvency protections. 

What did the Court of Appeal decide? 

  • The Court of Appeal rejected the argument that rent arrears-based possession orders cannot be made against tenants who are bankrupt or have Debt Relief Orders. 

  • Accordingly, neither an assured tenancy’s bankruptcy, nor a tenant's DRO, prevent a court from making a possession claim on rent arrears grounds. Indeed, where the mandatory ground for rent arrears is made out the county court must continue to grant social landlords their possession orders. 

  • However, the fact that rent arrears are a debt provable in a bankruptcy, or amongst the debts listed in a DRO, does affect the court’s powers to make ancillary orders for recovery of rent arrears. Such orders should not be made because that would undermine the statutory insolvency schemes of bankruptcy and DRO which contain their own rules for dealing with the debts to which they relate. 

  • As a result, in Mr Godfrey’s case, the possession order should not have include conditions requiring payment of those rent arrears that were included in the DRO. That element of the order was removed by the Court of Appeal. 

  • But Ms Sharples possession order stands. 

Case name: Sharples v Places for People Homes Limited; Godfrey v A2 Dominion Homes Limited, July 2011.

 

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