Insolvency – Disclaimer

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INTRODUCTION

1. Disclaimer is a procedure available in the liquidation of companies and the bankruptcy of individualsby which the insolvent entity can divest itself of certain continuing obligations.

THE LAW AND COURT RULES

2. Copies of the relevant provisions of the Insolvency Act 1986 (“IA 1986”) and Insolvency Rules 1986 (“IR 1986”) are attached.

Property which can be disclaimed

3. Any “onerous property” can be disclaimed. “Onerous property” is defined in terms ON any unprofitable contract and (b) any other property of the company which is unsalable or not readily saleable or is such that it may give rise to a liability to pay money or perform any other onerous act: Insolvency Act 1986

Examples of “onerous property” include leases (including continuation tenancies under the 1954 Act) as well as agreements for leases and some licences and also onerous contractual obligations (egg in relation to terminal repair) on expiry of leases.

Procedure

4. The procedure for disclaiming is essentially administrative in nature. The liquidator/trustee in bankruptcy (“TIB”) simply files a notice of disclaimer in court

5. Within 7 days of the notice being returned to him, the liquidator/TIB must serve a copy of it on so many of the following as he is aware of:

(1) where the disclaimed property is of a leasehold nature, any person claiming under the company/bankrupt as under lessee or mortgagee

(2) where the disclaimed property is a dwelling house and the disclaimer is made in bankruptcy proceedings, any person occupying or claiming the right to occupy the property

(3) in any case

(i) any person claiming any interest in the disclaimed property

(ii) any person under a liability in respect of the disclaimed property which is not discharged by the disclaimer

Effect of disclaimer

6. A disclaimer operates so as to determine, as from the date of the disclaimer, the rights, interests and liabilities of the [company/bankrupt] in or in respect of the property disclaimed.

7. Where a lease is disclaimed, the effect of the disclaimer as between the landlord and the tenant is therefore that neither party owes the other any further obligation under or in respect of the lease. The tenant loses any right to remain in the premises and the landlord can demand possession.

8. A disclaimer has no effect on a liquidator because the company’s property does not vest in liquidator when the company goes into liquidation, but because the bankrupt’s property vests in the TIB personally, he becomes liable on the covenants in the lease. By disclaiming, he discharges himself from all personal liability in respect of the property. Moreover, in his case, the disclaimer operates from the date of commencement of his trusteeship (i.e. it is retrospective)

Third parties

9. Potentially relevant third parties include the following:-

• Surety for insolvent tenant

• Original tenant

• Intermediate assignee

• Sureties for original tenant or intermediate assignee

• Subtenant

• Mortgagee

Vesting orders

10. Where a liquidator/TIB has disclaimed onerous property, it is open to any person claiming an interest in the property or being under a liability in respect of the property to apply to court for an order vesting the property in such person or a trustee for such person.

11. In the case of leasehold property, it is therefore potentially open to the following persons to apply for a vesting order:

• Original tenants

• Sureties

• Intermediate tenants who are liable to the landlord

• Subtenants

• Mortgagees

• Landlord

12. Furthermore, it is specifically provided in bankruptcy cases involving a dwelling house that it is open to any person in occupation or entitled to occupy the property to make an application

13. There is a time limit of 3 months from the date on which the applicant first became aware of the disclaimer. This creates a potential difficulty (see further below) for persons subject to a liability in respect of the property who may be unsure whether they are going to be pursued by the landlord and accordingly whether they might wish to apply for a vesting order.

14. The court has discretion whether to grant a vesting order and its terms.

 

Right to put liquidator/TIB to his election whether to disclaim

15. Any “person interested in the property” may apply in writing to the liquidator/TIB requiring him to decide whether he will disclaim or not.  If the liquidator/TIB does not disclaim he loses the right to do so and, in the case of the TIB, is deemed to have affirmed the lease.

Obtaining possession of the property

16. The most obvious option for the landlord following disclaimer is to re-take possession of the property and to re-let it. He will obviously not face any resistance from the tenant in so doing and, if no one else is in possession of the property, he will not need any order of the court. However, if there are others in possession of the property or with potential rights to the property (e.g. subtenants or mortgagees), he will probably need to proceed by way of applying for a vesting order in order to clear off such interests.

17. The landlord must, of course, bear in mind that by obtaining possession of the property he will be putting an end to the following:-

• any claim he might have against third parties (egg sureties or original tenants or intermediate assignees) liable in respect of on-going rent or other obligations under the lease

• (subject to their right to seek relief from forfeiture) any subtenants’ interests in the property.

18. He will therefore need to weigh up carefully the advantages and disadvantages of obtaining possession as against retaining rights against third parties. Relevant factors will include:

• ease of re-letting

• likely rental on re-letting

• existence of rights against third parties

• likely recoveries from third parties on exercise of such rights

• likely reaction of third parties in terms of seeking vesting orders or overriding lease

• existence of subleases

• likelihood of subtenants wishing to pay the rent or to apply for a vesting order

• size of likely distribution in winding up/bankruptcy.

 

  • If you are a landlord,a tenant, a director of the company going into liquidation, someone facing bankruptcy, or, especially, the spouse or partner of someone facing bankruptcy, consult the experts.

 

USUAL

INSOLVENCY ACT 1986

178 Power to disclaim onerous property

(1) This and the next two sections apply to a company that is being wound up in England and Wales.

(2) Subject as follows, the liquidator may, by the giving of the prescribed notice, disclaim any onerous property and may do so notwithstanding that he has taken possession of it, endeavoured to sell it, or otherwise exercised rights of ownership in relation to it.

(3) The following is onerous property for the purposes of this section–

(a) any unprofitable contract, and

(b) any other property of the company which is unsaleable or not readily saleable or is such that it may give rise to a liability to pay money or perform any other onerous act.

(4) A disclaimer under this section–

(a) operates so as to determine, as from the date of the disclaimer, the rights, interests and liabilities of the company in or in respect of the property disclaimed; but

(b) does not, except so far as is necessary for the purpose of releasing the company from any liability, affect the rights or liabilities of any other person.

(5) A notice of disclaimer shall not be given under this section in respect of any property if–

(a) a person interested in the property has applied in writing to the liquidator or one of his predecessors as liquidator requiring the liquidator or that predecessor to decide whether he will disclaim or not, and

(b) the period of 28 days beginning with the day on which that application was made, or such longer period as the court may allow, has expired without a notice of disclaimer having been given under this section in respect of that property.

(6) Any person sustaining loss or damage in consequence of the operation of a disclaimer under this section is deemed a creditor of the company to the extent of the loss or damage and accordingly may prove for the loss or damage in the winding up.

179 Disclaimer of leaseholds

(1) The disclaimer under section 178 of any property of a leasehold nature does not take effect unless a copy of the disclaimer has been served (so far as the liquidator is aware of their addresses) on every person claiming under the company as underlessee or mortgagee and either–

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(a) no application under section 181 below is made with respect to that property before the end of the period of 14 days beginning with the day on which the last notice served under this subsection was served; or

(b) where such an application has been made, the court directs that the disclaimer shall take effect.

(2) Where the court gives a direction under subsection (1)(b it may also, instead of or in addition to any order it makes under section 181, make such orders with respect to fixtures, tenant’s improvements and other matters arising out of the lease as it thinks fit.

180 Land subject to rentcharge

(1) The following applies where, in consequence of the disclaimer under section 178 of any land subject to a rentcharge, that land vests by operation of law in the Crown or any other person (referred to in the next subsection as “the proprietor”).

(2) The proprietor and the successors in title of the proprietor are not subject to any personal liability in respect of any sums becoming due under the rentcharge except sums becoming due after the proprietor, or some person claiming under or through the proprietor, has taken possession or control of the land or has entered into occupation of it.

181 Powers of court (general)

(1) This section and the next apply where the liquidator has disclaimed property under section 178.

(2) An application under this section may be made to the court by–

(a) any person who claims an interest in the disclaimed property, or

(b) any person who is under any liability in respect of the disclaimed property, not being a liability discharged by the disclaimer.

(3) Subject as follows, the court may on the application make an order, on such terms as it thinks fit, for the vesting of the disclaimed property in, or for its delivery to–

(a) a person entitled to it or a trustee for such a person, or

(b) a person subject to such a liability as is mentioned in subsection (2)(b) or a trustee for such a person.

(4) The court shall not make an order under subsection (3)(b) except where it appears to the court that it would be just to do so for the purpose of compensating the person subject to the liability in respect of the disclaimer.

(5) The effect of any order under this section shall be taken into account in assessing for the purpose of section 178(6) the extent of any loss or damage sustained by any person in consequence of the disclaimer.

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(6) An order under this section vesting property in any person need not be completed by conveyance, assignment or transfer.

182 Powers of court (leaseholds)

(1) The court shall not make an order under section 181 vesting property of a leasehold nature in any person claiming under the company as underlessee or mortgagee except on terms making that person–

(a) subject to the same liabilities and obligations as the company was subject to under the lease at the commencement of the winding up, or

(b) if the court thinks fit, subject to the same liabilities and obligations as that person would be subject to if the lease had been assigned to him at the commencement of the winding up.

(2) For the purposes of an order under section 181 relating to only part of any property comprised in a lease, the requirements of subsection (1) apply as if the lease comprised only the property to which the order relates.

(3) Where subsection (1) applies and no person claiming under the company as underlessee or mortgagee is willing to accept an order under section 181 on the terms required by virtue of that subsection, the court may, by order under that section, vest the company’s estate or interest in the property in any person who is liable (whether personally or in a representative capacity, and whether alone or jointly with the company) to perform the lessee’s covenants in the lease.

The court may vest that estate and interest in such a person freed and discharged from all estates, incumbrances and interests created by the company.

(4) Where subsection (1) applies and a person claiming under the company as underlessee or mortgagee declines to accept an order under section 181, that person is excluded from all interest in the property.

315 Disclaimer (general power)

(1) Subject as follows, the trustee may, by the giving of the prescribed notice, disclaim any onerous property and may do so notwithstanding that he has taken possession of it, endeavoured to sell it or otherwise exercised rights of ownership in relation to it.

(2) The following is onerous property for the purposes of this section, that is to say–

(a) any unprofitable contract, and

(b) any other property comprised in the bankrupt’s estate which is unsaleable or not readily saleable, or is such that it may give rise to a liability to pay money or perform any other onerous act.

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(3) A disclaimer under this section–

(a) operates so as to determine, as from the date of the disclaimer, the rights, interests and liabilities of the bankrupt and his estate in or in respect of the property disclaimed, and

(b) discharges the trustee from all personal liability in respect of that property as from the commencement of his trusteeship,

but does not, except so far as is necessary for the purpose of releasing the bankrupt, the bankrupt’s estate and the trustee from any liability, affect the rights or liabilities of any other person.

(4) A notice of disclaimer shall not be given under this section in respect of any property that has been claimed for the estate under section 307 (after-acquired property) or 308 (personal property of bankrupt exceeding reasonable replacement value) [or 308A], except with the leave of the court.

(5) Any person sustaining loss or damage in consequence of the operation of a disclaimer under this section is deemed to be a creditor of the bankrupt to the extent of the loss or damage and accordingly may prove for the loss or damage as a bankruptcy debt.

316 Notice requiring trustee’s decision

(1) Notice of disclaimer shall not be given under section 315 in respect of any property if–

(a) a person interested in the property has applied in writing to the trustee or one of his predecessors as trustee requiring the trustee or that predecessor to decide whether he will disclaim or not, and

(b) the period of 28 days beginning with the day on which that application was made has expired without a notice of disclaimer having been given under section 315 in respect of that property.

(2) The trustee is deemed to have adopted any contract which by virtue of this section he is not entitled to disclaim.

317 Disclaimer of leaseholds

(1) The disclaimer of any property of a leasehold nature does not take effect unless a copy of the disclaimer has been served (so far as the trustee is aware of their addresses) on every person claiming under the bankrupt as underlessee or mortgagee and either–

(a) no application under section 320 below is made with respect to the property before the end of the period of 14 days beginning with the day on which the last notice served under this subsection was served, or

(b) where such an application has been made, the court directs that the disclaimer is to take effect.

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(2) Where the court gives a direction under subsection (1)(b) it may also, instead of or in addition to any order it makes under section 320, make such orders with respect to fixtures, tenant’s improvements and other matters arising out of the lease as it thinks fit.

318 Disclaimer of dwelling house

Without prejudice to section 317, the disclaimer of any property in a dwelling house does not take effect unless a copy of the disclaimer has been served (so far as the trustee is aware of their addresses) on every person in occupation of or claiming a right to occupy the dwelling house and either–

(a) no application under section 320 is made with respect to the property before the end of the period of 14 days beginning with the day on which the last notice served under this section was served, or

(b) where such an application has been made, the court directs that the disclaimer is to take effect.

319 Disclaimer of land subject to rentcharge

(1) The following applies where, in consequence of the disclaimer under section 315 of any land subject to a rentcharge, that land vests by operation of law in the Crown or any other person (referred to in the next subsection as “the proprietor”).

(2) The proprietor, and the successors in title of the proprietor, are not subject to any personal liability in respect of any sums becoming due under the rentcharge, except sums becoming due after the proprietor, or some person claiming under or through the proprietor, has taken possession or control of the land or has entered into occupation of it.

320 Court order vesting disclaimed property

(1) This section and the next apply where the trustee has disclaimed property under section 315.

(2) An application may be made to the court under this section by–

(a) any person who claims an interest in the disclaimed property,

(b) any person who is under any liability in respect of the disclaimed property, not being a liability discharged by the disclaimer, or

(c) where the disclaimed property is property in a dwelling-house, any person who at the time when the bankruptcy petition was presented was in occupation of or entitled to occupy the dwelling house.

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(3) Subject as follows in this section and the next, the court may, on an application under this section, make an order on such terms as it thinks fit for the vesting of the disclaimed property in, or for its delivery to–

(a) a person entitled to it or a trustee for such a person,

(b) a person subject to such a liability as is mentioned in subsection (2)(b) or a trustee for such a person, or

(c) where the disclaimed property is property in a dwelling-house, any person who at the time when the bankruptcy petition was presented was in occupation of or entitled to occupy the dwelling house.

(4) The court shall not make an order by virtue of subsection (3)(b) except where it appears to the court that it would be just to do so for the purpose of compensating the person subject to the liability in respect of the disclaimer.

(5) The effect of any order under this section shall be taken into account in assessing for the purposes of section 315(5) the extent of any loss or damage sustained by any person in consequence of the disclaimer.

(6) An order under this section vesting property in any person need not be completed by any conveyance, assignment or transfer.

321 Order under s 320 in respect of leaseholds

(1) The court shall not make an order under section 320 vesting property of a leasehold nature in any person, except on terms making that person–

(a) subject to the same liabilities and obligations as the bankrupt was subject to under the lease on the day the bankruptcy petition was presented, or

(b) if the court thinks fit, subject to the same liabilities and obligations as that person would be subject to if the lease had been assigned to him on that day.

(2) For the purposes of an order under section 320 relating to only part of any property comprised in a lease, the requirements of subsection (1) apply as if the lease comprised only the property to which the order relates.

(3) Where subsection (1) applies and no person is willing to accept an order under section 320 on the terms required by that subsection, the court may (by order under section 320) vest the estate or interest of the bankrupt in the property in any person who is liable (whether personally or in a representative capacity and whether alone or jointly with the bankrupt) to perform the lessee’s covenants in the lease.

The court may by virtue of this subsection vest that estate and interest in such a person freed and discharged from all estates, incumbrances and interests created by the bankrupt.

(4) Where subsection (1) applies and a person declines to accept any order under section 320, that person shall be excluded from all interest in the property.

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INSOLVENCY RULES 1986

4.187 Liquidator’s notice of disclaimer

(1) Where the liquidator disclaims property under section 178, the notice of disclaimer shall contain such particulars of the property disclaimed as enable it to be easily identified.

(2) The notice shall be signed by the liquidator and filed in court, with a copy. The court shall secure that both the notice and the copy are sealed and endorsed with the date of filing.

(3) The copy notice, so sealed and endorsed, shall be returned by the court to the liquidator as follows–

(a) if the notice has been delivered at the offices of the court by the liquidator in person, it shall be handed to him,

(b) if it has been delivered by some person acting on the liquidator’s behalf, it shall be handed to that person, for immediate transmission to the liquidator, and

(c) otherwise, it shall be sent to the liquidator by first class post.

The court shall cause to be endorsed on the original notice, or otherwise recorded on the file, the manner in which the copy notice was returned to the liquidator.

(4) For the purposes of section 178, the date of the prescribed notice is that which is endorsed on it, and on the copy, in accordance with this Rule.

4.188 Communication of disclaimer to persons interested

(1) Within 7 days after the day on which the copy of the notice of disclaimer is returned to him under Rule 4.187, the liquidator shall send or give copies of the notice (showing the date endorsed as required by that Rule) to the persons mentioned in paragraphs (2) to (4) below.

(2) Where the property disclaimed is of a leasehold nature, he shall send or give a copy to every person who (to his knowledge) claims under the company as underlessee or mortgagee.

(3) He shall in any case send or give a copy of the notice to every person who (to his knowledge)–

(a) claims an interest in the disclaimed property, or

(b) is under any liability in respect of the property, not being a liability discharged by the disclaimer.

(4) If the disclaimer is of an unprofitable contract, he shall send or give copies of the notice to all such persons as, to his knowledge, are parties to the contract or have interests under it.

(5) If subsequently it comes to the liquidator’s knowledge, in the case of any person, that he has such an interest in the disclaimed property as would have entitled

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him to receive a copy of the notice of disclaimer in pursuance of paragraphs (2) to (4), the liquidator shall then forthwith send or give to that person a copy of the notice.

But compliance with this paragraph is not required if–

(a) the liquidator is satisfied that the person has already been made aware of the disclaimer and its date, or

(b) the court, on the liquidator’s application, orders that compliance is not required in that particular case.

4.189 Additional notices

The liquidator disclaiming property may, without prejudice to his obligations under sections 178 to 180 and Rules 4.187 and 4.188, at any time give notice of the disclaimer to any persons who in his opinion ought, in the public interest or otherwise, to be informed of it.

4.190 Duty to keep court informed

The liquidator shall notify the court from time to time as to the persons to whom he has sent or given copies of the notice of disclaimer under the two preceding Rules, giving their names and addresses, and the nature of their respective interests.

4.191 Application by interested party under s 178(5)

Where, in the case of any property, application is made to the liquidator by an interested party under section 178(5) (request for decision whether the property is to be disclaimed or not), the application–

(a) shall be delivered to the liquidator personally or by registered post, and

(b) shall be made in the form known as “notice to elect”, or a substantially similar form.

4.192 Interest in property to be declared on request

(1) If, in the case of property which the liquidator has the right to disclaim, it appears to him that there is some person who claims, or may claim, to have an interest in the property, he may give notice to that person calling on him to declare within 14 days whether he claims any such interest and, if so, the nature and extent of it.

(2) Failing compliance with the notice, the liquidator is entitled to assume that the person concerned has no such interest in the property as will prevent or impede its disclaimer.

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4.193 Disclaimer presumed valid and effective

Any disclaimer of property by the liquidator is presumed valid and effective, unless it is proved that he has been in breach of his duty with respect to the giving of notice of disclaimer, or otherwise under sections 178 to 180, or under this Chapter of the Rules.

4.194 Application for exercise of court’s powers under s 181

(1) This Rule applies with respect to an application by any person under section 181 for an order of the court to vest or deliver disclaimed property.

(2) The application must be made within 3 months of the applicant becoming aware of the disclaimer, or of his receiving a copy of the liquidator’s notice of disclaimer sent under Rule 4.188, whichever is the earlier.

(3) The applicant shall with his application file in court an affidavit–

(a) stating whether he applies under paragraph (a) of section 181(2) (claim of interest in the property) or under paragraph (b) (liability not discharged);

(b) specifying the date on which he received a copy of the liquidator’s notice of disclaimer, or otherwise became aware of the disclaimer; and

(c) specifying the grounds of his application and the order which he desires the court to make under section 181.

(4) The court shall fix a venue for the hearing of the application; and the applicant shall, not later than 7 days before the date fixed, give to the liquidator notice of the venue, accompanied by copies of the application and the affidavit under paragraph (3).

(5) On the hearing of the application, the court may give directions as to other persons (if any) who should be sent or given notice of the application and the grounds on which it is made.

(6) Sealed copies of any order made on the application shall be sent by the court to the applicant and the liquidator.

(7) In a case where the property disclaimed is of a leasehold nature, and section 179 applies to suspend the effect of the disclaimer, there shall be included in the court’s order a direction giving effect to the disclaimer.

This paragraph does not apply if, at the time when the order is issued, other applications under section 181 are pending in respect of the same property.

See rules 6.178 to 6.186 for broadly similar provisions applicable in bankruptcy

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Landlord and Tenant (Covenants) Act 1995

19 Right of former tenant or his guarantor to overriding lease

(1) Where in respect of any tenancy (“the relevant tenancy”) any person (“the claimant”) makes full payment of an amount which he has been duly required to pay in accordance with section 17, together with any interest payable, he shall be entitled (subject to and in accordance with this section) to have the landlord under that tenancy grant him an overriding lease of the premises demised by the tenancy.

(2) For the purposes of this section “overriding lease” means a tenancy of the reversion expectant on the relevant tenancy which–

(a) is granted for a term equal to the remainder of the term of the relevant tenancy plus three days or the longest period (less than three days) that will not wholly displace the landlord’s reversionary interest expectant on the relevant tenancy, as the case may require; and

(b) (subject to subsections (3) and (4) and to any modifications agreed to by the claimant and the landlord) otherwise contains the same covenants as the relevant tenancy, as they have effect immediately before the grant of the lease.

(3) An overriding lease shall not be required to reproduce any covenant of the relevant tenancy to the extent that the covenant is (in whatever terms) expressed to be a personal covenant between the landlord and the tenant under that tenancy.

(4) If any right, liability or other matter arising under a covenant of the relevant tenancy falls to be determined or otherwise operates (whether expressly or otherwise) by reference to the commencement of that tenancy–

(a) the corresponding covenant of the overriding lease shall be so framed that that right, liability or matter falls to be determined or otherwise operates by reference to the commencement of that tenancy; but

(b) the overriding lease shall not be required to reproduce any covenant of that tenancy to the extent that it has become spent by the time that that lease is granted.

(5) A claim to exercise the right to an overriding lease under this section is made by the claimant making a request for such a lease to the landlord; and any such request–

(a) must be made to the landlord in writing and specify the payment by virtue of which the claimant claims to be entitled to the lease (“the qualifying payment”); and

(b) must be so made at the time of making the qualifying payment or within the period of 12 months beginning with the date of that payment.

(6) Where the claimant duly makes such a request–

(a) the landlord shall (subject to subsection (7)) grant and deliver to the claimant an overriding lease of the demised premises within a reasonable time of the request being received by the landlord; and

(b) the claimant–

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(i) shall thereupon deliver to the landlord a counterpart of the lease duly executed by the claimant, and

(ii) shall be liable for the landlord’s reasonable costs of and incidental to the grant of the lease.

(7) The landlord shall not be under any obligation to grant an overriding lease of the demised premises under this section at a time when the relevant tenancy has been determined; and a claimant shall not be entitled to the grant of such a lease if at the time when he makes his request–

(a) the landlord has already granted such a lease and that lease remains in force; or

(b) another person has already duly made a request for such a lease to the landlord and that request has been neither withdrawn nor abandoned by that person.

(8) Where two or more requests are duly made on the same day, then for the purposes of subsection (7)–

(a) a request made by a person who was liable for the qualifying payment as a former tenant shall be treated as made before a request made by a person who was so liable as a guarantor; and

(b) a request made by a person whose liability in respect of the covenant in question commenced earlier than any such liability of another person shall be treated as made before a request made by that other person.

(9) Where a claimant who has duly made a request for an overriding lease under this section subsequently withdraws or abandons the request before he is granted such a lease by the landlord, the claimant shall be liable for the landlord’s reasonable costs incurred in pursuance of the request down to the time of its withdrawal or abandonment; and for the purposes of this section–

(a) a claimant’s request is withdrawn by the claimant notifying the landlord in writing that he is withdrawing his request; and

(b) a claimant is to be regarded as having abandoned his request if–

(i) the landlord has requested the claimant in writing to take, within such reasonable period as is specified in the landlord’s request, all or any of the remaining steps required to be taken by the claimant before the lease can be granted, and

(ii) the claimant fails to comply with the landlord’s request,

and is accordingly to be regarded as having abandoned it at the time when that period expires.

(10) Any request or notification under this section may be sent by post.

(11) The preceding provisions of this section shall apply where the landlord is the tenant under an overriding lease granted under this section as they apply where no such lease has been granted; and accordingly there may be two or more such leases interposed between the first such lease and the relevant tenancy.

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20 Overriding leases: supplementary provisions

(1) For the purposes of section 1 an overriding lease shall be a new tenancy only if the relevant tenancy is a new tenancy.

(2) Every overriding lease shall state–

(a) that it is a lease granted under section 19, and

(b) whether it is or is not a new tenancy for the purposes of section 1;

and any such statement shall comply with such requirements as may be prescribed by [land registration rules under the Land Registration Act 2002].

(3) A claim that the landlord has failed to comply with subsection (6)(a) of section 19 may be made the subject of civil proceedings in like manner as any other claim in tort for breach of statutory duty; and if the claimant under that section fails to comply with subsection (6)(b)(i) of that section he shall not be entitled to exercise any of the rights otherwise exercisable by him under the overriding lease.

(4) An overriding lease–

(a) shall be deemed to be authorised as against the persons interested in any mortgage of the landlord’s interest (however created or arising); and

(b) shall be binding on any such persons;

and if any such person is by virtue of such a mortgage entitled to possession of the documents of title relating to the landlord’s interest–

(i) the landlord shall within one month of the execution of the lease deliver to that person the counterpart executed in pursuance of section 19(6)(b)(i); and

(ii) if he fails to do so, the instrument creating or evidencing the mortgage shall apply as if the obligation to deliver a counterpart were included in the terms of the mortgage as set out in that instrument.

(5) It is hereby declared–

(a) that the fact that an overriding lease takes effect subject to the relevant tenancy shall not constitute a breach of any covenant of the lease against subletting or parting with possession of the premises demised by the lease or any part of them; and

(b) that each of sections 16, 17 and 18 applies where the tenancy referred to in subsection (1) of that section is an overriding lease as it applies in other cases falling within that subsection.

(6) No tenancy shall be registrable under the Land Charges Act 1972 or be taken to be an estate contract within the meaning of that Act by reason of any right or obligation that may arise under section 19, and any right arising from a request made under that section shall not be [capable of falling within paragraph 2 of Schedule 1 or 3 to the Land Registration Act 2002]; but any such request shall be registrable under

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the Land Charges Act 1972, or may be the subject of a notice [under the Land Registration Act 2002], as if it were an estate contract.

(7) In this section–

(a) “mortgage” includes “charge”; and

(b) any expression which is also used in section 19 has the same meaning as in that section.

© James Ayliffe

Wilberforce Chambers

020 7306 0102

jayliffe@wilberforce.co.uk

October 2006

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For more information or a free legal opinion telephone 020-7381-8111 or email law@hylton-potts.com.