A lease in joint names of a bankrupt and co-tenant cannot be disclaimed by a Trustee in Bankruptcy

The High Court in Abdulla v Whelan & anors [2017] EWHC 605 (Ch), decided a lease held in joint names (of a bankrupt and co-tenant) was not property that vested in the Trustee in Bankruptcy (TIB). This meant the lease could not be disclaimed, leaving the bankrupt liable for the rent owed.

Background Facts

The claimant was the husband and potential creditor of the bankrupt. He appealed a decision of Kingston County Court contending that the notice of disclaimer issued by the TIB to discharge the TIB from all personal liability was valid and the entirety of the bankrupt’s lease had been disclaimed, meaning no further rent was due in accordance with the lease.

The following points were relied upon by the claimant to substantiate his argument that the lease had been disclaimed.

  • The legal estate in the lease was not excluded from the bankrupt’s estate.
  • The TIB could disclaim the lease as an unprofitable contract, and,
  • The property was held on trust for ‘any other person’ which included the bankrupt and therefore could be disclaimed.

The Legislation

Section 83 of the Insolvency Act 1986 (IA 1986) states:

Subject as follows, a bankrupt’s estate for the purposes of any of this Group of Parts comprises—

  • All property belonging to or vested in the bankrupt at the commencement of the bankruptcy, and
  • Any property which by virtue of any of the following provisions of this Part is comprised in that estate or is treated as falling with the preceding paragraph.

Subsection (1) does not apply to—

  • Property held by the bankrupt on trust for any other person, or
  • The right of nomination to a vacant ecclesiastical benefice.

High Court Decision

The High Court held, as the bankrupt jointly owned the lease, the legal estate could not be severed in law and so could not vest in the TIB for him to disclaim. The TIB only held the beneficial interest in the lease.

Further it was said that the lease was not an unprofitable contract under section 325 (1) (a) of the IA 1986.

Finally, the court held that the bankrupt was excluded from the definition of ‘any other person’ in section 83 (2) IA 1986 because the lease was held by the bankrupt on trust for herself and so she was not ‘any other person’.

For further information, please contact the Real Estate Disputes Team at Hamlins.