VIC Can Trustee Claw Back Rent from Landlord?

[Rob Legat - SBPL]

This argument is pointless. You need to look at the totality of the situation, and not shift the focus.

Your original question was: "If I pay rent in advance, say 2 years, and they bankrupt me, can the trustee claw back the rent from the landlord?"

It's obvious from you what you've said that the ambit of doing this is to defeat creditors by reducing your asset pool in bankruptcy. That is illegal. If your trustee in bankruptcy (should you become so) determines that the transaction was done in an effort to defeat your creditors, then the trustee may take action against the landlord to recover the money under section 121 of the Bankruptcy Act. That's the answer to your question.

 

[Macaque]

This argument is pointless. You need to look at the totality of the situation, and not shift the focus.

Your original question was: "If I pay rent in advance, say 2 years, and they bankrupt me, can the trustee claw back the rent from the landlord?"

Yes that is the circumstances but actually it's a specific legal question regarding upfront lease payments and consideration.

It's obvious from you what you've said that the ambit of doing this is to defeat creditors by reducing your asset pool in bankruptcy. That is illegal.

It is only illegal if it doesn't satisfy S121(4). So you haven't answered the question:

Is the upfront lease payment at least as valuable as the market value of the right to use for 2 years?

 

[Rob Legat - SBPL]

The "right to use for 2 years" is unlikely to have an appreciable market value if there is any right of restriction of assignment of the lease by the landlord. And, if there's no right of restriction then the trustee is going to start considering that the transaction is not a commercial, arms length transaction.

Then you'll run into subsections 121(4)(b) and (c). Note that these are "and" provisions. The landlord would probably be considered to have been reasonably put on notice to make further inquiries if a tenant asks for a long lease, paid upfront and with the unfettered ability to assign it. I doubt that any prudent landlord would agree to that, or at least wouldn't start asking questions about the circumstances.

 

[Macaque]

The "right to use for 2 years" is unlikely to have an appreciable market value if there is any right of restriction of assignment of the lease by the landlord.

Then it satisfies 121(4)(a) since the consideration given is at least as valuable as the market value of the right to use.

(b) & (c) would not come into play since the landlord would need a specific reason to suspect insolvency other than a good deal.

 

[Rob Legat - SBPL]

No.

Subsection 121(4)(a) refers to the value the landlord gives to you in exchange for the money paid. The market value of the 'right to use for 2 years' has to be at least as valuable as the amount of rent paid. You seem to have it backwards.

Regarding (b) and (c), the nature of the transaction needed to get any hope of value into the 'right to use..." would likely be sufficiently outside the scope of normal a normal commercial transaction to put the landlord on notice that they should make further inquiries. It would be up to a court to determine whether the landlord in that situation "could not have reasonably inferred". If a court found that a reasonable person would have made inquiries, and therefore found out the full reason for the structure of the transaction, then I think the subsections would come into effect.

Any landlord who receives a deal which is "too good to be true" and doesn't ask questions is either taking a big risk, or simply willing to turn a blind eye to things. The law generally doesn't help either situation.

 

[Macaque]

Yes, you're right, I had that back to front.

In Victoria a landlord has no right to unreasonably restrict assignment therefore there is a market value.

If there's no right of restriction then the trustee is going to start considering that the transaction is not a commercial, arms length transaction.

The right of assignment is governed by the tenancies act. Why would it not be commercial, arms length? There is no prior relationship between tenant and the landlord.

It is not unusual these days for a tenants to offer a large payment up front to secure a property that is in a good position and has reasonable rent.

 

[Tim W]

In Victoria a landlord has no right to unreasonably restrict assignment...

This is irrelevant to your question.


Further, I've just noticed the time of year, and I am now wondering - is your original question a real life matter,
or is it a law student's assignment?