The High Court, in an insolvency case, was asked whether the administrators had an immediate and unencumbered right to possession of the properties.
Facts:
The administrators of Pocket Renting Ltd. (the company), which owns a portfolio of sixty-five residential properties, applied to the Court under Section 234 of the Insolvency Act (IA) 1986, seeking an order for vacant possession of five specific properties. The company had previously let these properties to Investalet Ltd. (the first respondent) under five written tenancy agreements entered into between 2018 and 2021. Administrators were subsequently appointed on 29 September 2023.
On 22 October 2023, the administrators terminated the company’s management agreement with Dendrow Ltd. Following the termination, the administrators sought information and payment from Investalet, although Investalet failed to pay any rent after November 2023, giving only vague and unjustified reasons for withholding payment despite numerous demands. By August 2024, Investalet owed over £122,000 in unpaid rent. Consequently, the administrators served Notices to Quit on Investalet and the occupiers on 28 June 2024, effectively terminating the Investalet tenancies on 31 August 2024 while demanding vacant possession, although possession was not given.
In the proceedings, Investalet claimed it had sublet the properties to Bleu Plan LLC (a Dubai entity) pursuant to agreements dated March and April 2024, all of which were entered into after the administration began and without the administrators’ consent in breach of the original tenancies. Investalet asserted it had prior verbal permission to sublet from Mr. Wilkinson and alleged that it had withheld rent due to unresolved issues of disrepair that Bleu Plan’s tenants were complaining about, thus causing Bleu Plan to withhold rent from Investalet.
Furthermore, Investalet had agreed to pay £75,000 to settle the rent arrears up to August 2024 to secure the withdrawal of a winding-up petition, yet subsequently failed to pay £70,000 of that agreed sum. However, none of the actual occupiers appeared in the proceedings to assert a right to stay, and the administrators sought the possession order to enable them to sell the properties and realise value for the company’s creditors.
Decision:
The High Court dismissed the administrators’ application for an order of vacant possession against Investalet Ltd. The dismissal was based on a point of law regarding jurisdiction, rather than on the merits of the administrators’ claim. The judge ruled that Section 234 of the IA 1986, which allows the Court to order a person to “deliver, convey, surrender or transfer” company property, does not apply to a trespasser or unlawful occupier. A successful possession claim against a trespasser merely requires them to cease occupation, thereby terminating their possessory interest. It does not result in the transfer or surrender of any legal interest to the office-holder.
Crucially, the judge found that the administrators were fully entitled to possession on the merits of the property dispute, meaning the dismissal was purely procedural.
Implications:
This case primarily addresses the jurisdictional limits of the IA 1986, but provides clear rulings on the substantive property rights of the company in administration and the status of the occupier.
The most significant implication is the strict limitation on the use of Section 234 of the IA 1986 in property disputes. Section 234 does not serve as a possession remedy to remove an unlawful occupier or trespasser.
Property law recognises that, when a lawful owner asserts title against a trespasser, the trespasser’s possessory interest is terminated, although it is not necessarily transferred to the owner. The case confirms that the simple mechanism of a Notice to Quit remains an effective mechanism by which to terminate periodic tenancies, provided administrators are given an immediate right to possession.
The Court clearly rejected Investalet’s attempt to validate the sub-tenancies by relying on a former director’s alleged prior verbal consent. This confirms that any consent to breach a fundamental covenant (such as a prohibition on sub-letting) must be properly documented and, crucially, that such consent is automatically vitiated if the tenant simultaneously breaches other core terms, such as the covenant to pay rent.
