Free Grammar School of John Lyon v Helman

Bankruptcy automatically divests a registered proprietor of the legal estate, which vests in the trustee in bankruptcy by operation of law. Continued registration does not preserve the bankrupt’s ownership or make both the bankrupt and trustee tenants for statutory purposes. An agent’s authority to exercise contractual powers cannot enlarge the principal’s statutory rights. Receivers therefore cannot serve an enfranchisement notice in the bankrupt’s name where the bankrupt no longer satisfies the two-year qualifying condition under the Leasehold Reform Act 1967.

The respondent acquired a leasehold house from receivers appointed under a sub-charge. Before the receivers served a notice claiming the freehold under Part I of the Leasehold Reform Act 1967, the leaseholder had been adjudicated bankrupt and a trustee in bankruptcy had been appointed. The lease had vested in the trustee, although the trustee had not been registered as proprietor. The trustee later disclaimed the lease.

The Central London County Court held that the notice was valid and declared that the respondent was entitled to acquire the freehold. The landlords appealed, arguing that the bankrupt was no longer the qualifying tenant and, alternatively, that the disclaimer prevented the notice. The central issue was whether the receivers could exercise the right of enfranchisement in the bankrupt’s name after bankruptcy.

1. Appeal allowed. The declaration that the enfranchisement notice was valid was set aside.
2. Under sections 306(1) and 306(2) of the Insolvency Act 1986, the bankrupt’s estate vested in the trustee immediately on the trustee’s appointment and vested without conveyance, assignment or transfer. Section 27(5)(a) of the Land Registration Act 2002 confirms that a transfer on bankruptcy operates at law without registration.
3. Continued registration of the bankrupt as proprietor did not preserve his ownership or continuing interest in the lease. Sections 23 and 24 of the Land Registration Act 2002 concerned the registered proprietor’s dispositive powers, not an irrebuttable rule that he remained the owner. Section 58(1) did not alter the effect of bankruptcy.
4. The receivers’ contractual powers and agency were extensive, but they could operate only within the rights available in law at the time of exercise. They could sell the lease in the bankrupt’s name, but could not exercise an enfranchisement right that the bankrupt no longer possessed.
5. Because the bankrupt had ceased to be the qualifying tenant and had not been tenant for the last two years when the notice was served, the statutory condition in section 1(1)(b) of the Leasehold Reform Act 1967 was not satisfied. The notice was therefore a nullity.
6. The court declined to determine the alternative argument based on disclaimer under section 315(3) of the Insolvency Act 1986.

• Court of Appeal (Civil Division): The appeal from the Central London County Court was allowed. The declaration made on 11 April 2013, following judgment dated 19 March 2013, was set aside.