Rent recovery and tenant insolvency - Estates Gazette Q&A (2024)

Harriet Durn and Kate Traynor look at statutory demands and conditions which must be complied with before rent arrears can be recovered.

Question

I am the landlord of residential premises previously let to an individual in central London. The rent exceeds £100,000 per year. The tenant vacated after a year and is in rent arrears of almost £60,000. I have been unsuccessful in recovering the arrears to date despite sending significant correspondence to the tenant. I recently served a statutory demand on the tenant and have also presented a bankruptcy petition. The tenant is disputing the debt on the grounds that I have not complied with section 48 of the Landlord and Tenant Act 1987. The property is owned by me through a company registered in Jersey. Is the tenant right, and will I be successful in obtaining a bankruptcy order against the tenant?

Answer

Unfortunately, the tenant is likely to have successful grounds to defend the bankruptcy petition if you have not served a section 48 notice under the 1987 Act. This is because, technically speaking, the rent does not fall due until section 48 is complied with, and late service of notice could not retrospectively cure the defect once a bankruptcy petition is presented. The High Court, in the recent case of Sunset Ltd and another v Al-Hindi [2023] EWHC 2443 (Ch); [2023] PLSCS 167, confirmed, first, that failure to serve a section 48 notice meant the debt cannot be treated as due at the time the petition was presented, and second, that the late service of a section 48 notice providing an address for service in England and Wales will not cure a procedural defect retrospectively.

Explanation

Section 48(1) of the 1987 Act requires a landlord in respect of a residential dwelling to “…furnish the tenant with an address in England and Wales at which notices (including notices in proceedings) may be served on him by the tenant”. Therefore, failure to stipulate an address for service of notices, etc in a tenancy agreement or separate correspondence sent to the tenant equates to non-compliance with section 48 of the Act.

As a result of non-compliance with section 48 of the Act, pursuant to section 48(2), any rent outstanding from the tenant to the landlord will not fall due.

Unfortunately, in Sunset, the court confirmed that the debt cannot be treated as due at the time the bankruptcy petition was presented if section 48(1) has not been complied with. Section 267 of the Insolvency Act 1986 is authority for the fact that “…each of the petitioning creditors must be a person to whom the debt or (as the case may be) at least one of the debts is owed” and it, therefore, follows that the late service of a section 48 notice will not cure such defect. This highlights the importance of ensuring that a debt actually exists at the time of presenting a bankruptcy petition.

Unless section 48 of the 1987 Act has been complied with prior to the presentation of the petition, it is likely that you will need to withdraw your bankruptcy petition, notify the tenant of an address in England and Wales for the service of notices and proceedings pursuant to section 48 of the Act, and then serve a fresh statutory demand.

While most tenancies will contain details of an address for service of the landlord in England and Wales, it is becoming increasingly common for landlords to state an address outside of England and Wales (for example, the address of a foreign holding company in Jersey) as their address for service. You will need to check your tenancy agreement to confirm whether the address for service given for your company was in Jersey or in England and Wales.

If an address for service of notices and proceedings was given in England and Wales, you are likely to have complied with section 48 of the Act. If the tenancy agreement contains your company’s address in Jersey, you are required to supply an alternative address in England and Wales to avoid falling foul of section 48 of the Act.

If you have not complied with section 48 of the Act, then, as you have already served a statutory demand and bankruptcy petition, you will need to withdraw the bankruptcy petition and then give notice under section 48 of the Act to the tenant with your address for service in England and Wales. You will then need to serve a fresh statutory demand before proceeding with further bankruptcy proceedings.

Landlords will not be prevented from recovering debt as a result of failure to comply with section 48 of the Act for all time – they will just need to ensure that either:

1. the tenancy is clear in providing an address for service that is within England and Wales; or
2. a section 48 notice is served prior to the service of any statutory demand in relation to the debt arising out of residential premises.

Harriet Durn is an Associate at Charles Russell Speechlys LLP, and Kate Traynor is a barrister at Landmark Chambers.

This article was first published in Estates Gazette on 8 May 2024.