Trustee in Bankruptcy cases with Investment Properties. The Practical and Legal Considerations
Here at Antony Batty & Company LLP, our insolvency practitioners are seeing more Trustee in Bankruptcy cases which include investment properties. Our experience is that such cases are far from straight forward and that great care needs to be taken by the Trustee in Bankruptcy. In this article we give some bankruptcy advice which summarises some of the practical and legal considerations that need to be considered in such cases.
See our infographic detailing the appointment and role of a Trustee in Bankruptcy.
Practical Considerations for Trustee in Bankruptcy Cases with Investment Properties
- What is the value of the property/properties in question? In an ideal scenario the Trustee would know the value of assets and the related charges before taking any appointment, but sometimes this isn’t the case. In this scenario you need to get agents involved and get to the bottom of mortgagee/charge figures Once in possession of this information you can make an immediate decision on whether a sale of the property or maximising the collection of rent is the appropriate strategy for the property.
If you are looking at a long-term rent collection strategy, then you need to be mindful of any deadlines to redeem the mortgage and consider whether Capital Gains Tax will be payable, as an expense of the bankruptcy, in the event of any disposal. The Trustee is liable to account for income tax in respect of rental income received, via the bankrupt, and needs to make an allowance for payment of the same.
- What about the state of property? The Trustee will need to ensure that the property is habitable. Now you would imagine that this shouldn’t be a problem, but our experience is that in a property portfolio scenario some of the houses can be in better condition than others. If the Trustee is collecting rent, they are responsible for the properties and all the obligations that any normal landlord would need to comply with. Assuming that the property is habitable then you will just need to consider on-going maintenance costs.
- Third party interests. This is the tricky part of any landlord job. If the property is solely owned then the Trustee is the landlord automatically, so you will need to just balance the interests of the mortgagee with how the Trustee can meet the costs of managing the property, whilst also ensuring that the tenant is paying. Assuming that the costs and risks balance out then you just have to hope that the property doesn’t become a money pit and the tenant is happy to stay in place and pay on time.
What you might sometimes have to consider is whether the mortgage is paid by the Trustee. The Trustee isn’t obliged to make payment, but obviously the mortgagee may well end up appointing a Law of Property Act Receiver to collect the rent on their behalf if it hasn’t. This means that the Trustee is unlikely to be left with any future recovery from this property.
Legal Considerations
- The Tenant and Landlord Act. The Landlord and Tenant Act sets standards for tenants’ rights against their landlords. As Trustee you are bound to comply with these standards, including compliance with regards to the initial provision of paperwork to the tenant to ensure the tenancy has been correctly created. This will have a knock-on effect on the ability of the Trustee to evict tenants if it hasn’t.
- Health & Safety. The Trustee will be required to ensure that the property meets habitable standards and complies with current health and safety standards. This means that, among other things, having a valid gas and electricity safety certificate is essential. The Trustee will also want to ensure that insurance is in place to cover the property and potential public liability.
- Rent deposit scheme – All landlords are required to hold their tenant’s rent deposit within a recognised rent deposit scheme. Upon the Trustee in Bankruptcy’s appointment they should ensure their interest is noted, any deposit not accounted for may need to be repaid by the Trustee if/when the tenant leaves.
Bankruptcy Advice: Trustee in Bankruptcy cases with Investment Properties – Our Conclusion
When giving bankruptcy advice, our insolvency practitioners have found that these bankruptcy cases are far from straight forward and require the Trustee in Bankruptcy to be flexible in managing the competing interests of the Trustee, mortgagee and tenant.
You have to have an agent you can trust to assist with the management of the property and ensure that it is maintained to comply with the legal requirements of the Landlord and Tenant Act. Finally, you hope you have a good tenant who engages with the Trustee.
For bankruptcy advice, please contact or call our insolvency practitioners in London on 0208 088 0633. The initial meeting is FREE of charge.
