Leaseholder about to go bankrupt - freehold is creditor

RabbitMad

I've posted this on the bankruptcy board too but thought you guys might have more knowledge.

Simplifying matters (its a little more complex but not relevant to the questions I am asking)

I now own the freehold of a shop with a flat above.
The leaseholder of the flat is about to be made bankrupt.
The leaseholder owes me £5K via a Tomlin Order after being sued for unpaid ground rent, insurance, maintenance and service charges.

If the leaseholder is made bankrupt and the lease is sold to pay creditors where do I stand in the pecking order of creditors? Can I refuse to allow the lease to be re-asigned before I've been paid my money?

DVardysShadow

I would say that your rights as freeholder actually render you fairly immune to the bankruptcy, in that, if as freeholder, you have the right to refuse assignment of the lease, you actually control the value of the lease ... I know nothing about leasehold ... but I believe that any new leaseholder picks up the tab from any previous leaseholder.

BitterAndTwisted

Commercial property is very different to residential. My insticts tell me that the lease could not be re-assigned without your agreement.

Doozergirl

If the sale is forced then the lender repossessing will usually pick up the tab before the lease is re-assigned as the buyer's solicitor will see what is owed from the standard queries which you as freeholder will answer when a buyer surfaces. They should request that the monies outstanding are cleared before reassignment. Otherwise, as I understand it, the debt will pass to the new leaseholder!

I bought a flat, a repossession, of which our company owns the freehold. The leaseholder owed us money. I offered on the flat, not expecting to see the money owed, but I was happy with the price I was paying. After completion, we received a cheque for the outstanding balance anyway!

Richard_Webster

Why didn't OP seek to forfeit the lease for non-payment of rent and service charge? Borrower's mortgagee would then have paid amount owed to avoid losing its asset by forfeiture.

RabbitMad

I inherited the property recently when the case was in the settlement stage.

My solicitor advised that the type of lease meant that this option would be costly and treading new legal ground (and our case wasn't really that strong - no invoices for ground rent sent, a sporadic history of invoices for insurance and maintenance, plus the insurance and maintenance invoices that were issued bore little relation to reality - the property is part of a terrace and there is an overall management company for the whole terrace who manage the maintenance and insurance for the whole block)

So I spoke to the leaseholder and got them to meet in the middle from my relatives settlement offer and theirs. Only after the tomlin order was signed and agreed did the leaseholder tell me about his impending bankruptcy.

DVardysShadow

RabbitMad wrote: »

... So I spoke to the leaseholder and got them to meet in the middle from my relatives settlement offer and theirs. Only after the tomlin order was signed and agreed did the leaseholder tell me about his impending bankruptcy.

Not being a lawyer, it seems to me that a Tomlin Order is a Judge noting a Gentlemen's agreement exists [but not necessarily knowing the content of that agreement] and staying proceedings to allow the Gentlemen's agreement to take effect, but with the option for either side to reinvoke the stayed proceedings.

It appears to me that the leaseholder has been underhand here and if there is any mileage in it, you could continue with proceedings.

RabbitMad

I've was reading my dead relatives emails again last night trying to find the solicitors advice (so I could share it here for thouse interested) and saw that my relatives intention in the court action was not necessarily to recalim the money but make the leaseholder suffer and go for bankruptcy. (history: my relative had judgement against the leaseholder over 10 years ago for non payment of ground rent and service charges but it was never paid or properly enforced)

I am in two minds - one wants as much money from the leaseholder as possible, the other want to carry out the dead relatives wishes and push for bankruptcy. I'm sure the former thought will win out in the end, although the later has appeal as if the property was sold hopefully the new owner would pay up on time.

Here is the solicitors advice on forfieture on the lease:
"The short answer is that this is very difficult to do because the lease falls under the protection of Part 1 of the Landlord & Tenant Act 1945 as it is a long residential lease and there is no forfeiture clause. The only way in which to bring an end to this lease is to base a claim on repudiatory breach of contract. There is only one decided case, which is at low level being a county court decision, which indicates that non-payment of rent, as is the situation here, could be good grounds for repudiatory breach. I can see on the limited research undertaken there is no direct authority on the point. The county court decision related to breaches of repair covenants rather than covenant to pay rent but the principle should be the same.

Therefore, unless you have a strong desire to evict Mr xxxx and to be a law precedent, then I would not encourage you to take action beyond the recovery of the money due. Of course, it goes without saying that we like a challenge and if you would like to attempt to regain possession then we will prepare the necessary court papers."