In law, joint tenants are treated as being a single legal entity. As a result, any positive dealings with a joint tenancy require the agreement of all the joint tenants in order to be effective.
Abdulla v Whelan (as trustee in bankruptcy of Amin) [2017] EWHC 605 (Ch); [2017] PLSCS 93 appears to be the first case in which the court has had to consider whether a trustee in bankruptcy for one of two joint tenants can disclaim a jointly held legal estate in leasehold land. If not, can the landlord prove in the joint tenant’s bankruptcy for rents falling due after the date of the service of a notice of disclaimer until the end of the term?
Section 315(1) of the Insolvency Act 1986 enables trustees in bankruptcy to disclaim “onerous property”. And in Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] AC 70 the House of Lords ruled that disclaimer of a lease by a liquidator operates to accelerate the reversion as between the landlord and the current tenant, without affecting the rights and liabilities of others. As a result, such rights and liabilities continue as though the lease had not been determined.
Had the notice of disclaimer in Abdulla brought the legal estate in the lease to an end? The court rejected arguments that the insolvency regime would be frustrated if the bankrupt tenant were to remain liable under the lease and ruled that it had not been disclaimed.
The judge explained that a trustee in bankruptcy can disclaim property comprised in the bankrupt’s estate, but cannot disclaim property that he does not own. The tenants held the lease as joint legal owners on trust for themselves and section 283(3)(a) of the 1986 Act excepts from a bankrupt’s estate “property held on trust for any other person”. Consequently, the legal estate in the lease remained the property of the bankrupt and her co-owner.
The judge explained that, where property is held by joint tenants, the legal estate cannot be severed at law and, because the bankrupt and her co-owner were one joint legal entity, they could not be divided by the provisions of the 1986 Act. However, the bankrupt’s beneficial interest in the lease, as one of two tenants in common, had vested in her trustee in bankruptcy.
The obligation to pay rent is a contractual, legal obligation that flows from the legal interest in a lease, and not from any beneficial interest in it. It had not been suggested that the disclaimer of the bankrupt’s beneficial interest in the lease had terminated her legal obligations. Therefore, rent continued to payable to the landlords, who were entitled to prove in the tenant’s bankruptcy for rents falling due under the lease until the end of the term.
Allyson Colby is a property law consultant
