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A decision has been handed down from the Court of Appeal which gives landlords the right to recover rent from administrators says commercial property agent Prop-Search - a real game changer for landlords.
A clear judgement in favour of the landlords, in the case of Jervis v Pillar Denton Limited (Game Station), has been handed down by the Court of Appeal in the litigation generated by the video games retailer, Game, going into administration in March 2012. This decision changes the position on the question of when rent is payable as an expense of the administration, and so in priority to unsecured debts.
Samantha Jones, a Surveyor at Prop-Search, said: “Commercial landlords have been familiar with the practice that has grown up since the 2010 High Court case of Goldacre v Nortel. In this case, the Court found that if a quarter’s rent payable in advance fell due during a period in which the administrators were retaining the property for the purpose of the administration, then the whole of the quarter’s rent was payable as an administration expense, even if the administrators were to give up occupation later in the same quarter.”
She added: “The consequence of this decision was that it became increasingly common for companies to enter into administration on the day immediately after a quarter dates, thereby avoiding liability to pay the rent in full, even if they retained possession of the leasehold property for the whole of that quarter.”
In this most recent case, one of the companies in the Game Station group was the tenant of numerous leasehold retail properties from which the group traded. Most of the leases provided for rent to be payable quarterly in advance on the usual quarter days, as a result of which on 25 March 2012 approximately £10,000,000 in rent became due under the various leases. The group entered into administration on 26 March 2012. Whilst some stores were closed immediately many continued to trade in a new business which was rapidly sold to a separate company called Game Retail Limited.
Overruling Goldacre, the Court of Appeal found in favour of the appellant landlords of the Games Station group which had, in order to take advantage of the Goldacre ruling, entered administration one day after the March quarter day, on 26 March 2012. The Court held that when a company enters administration or liquidation it is immaterial whether this happens before or after a quarter day.
If premises leased by the company are used for the purpose of the administration or liquidation, the passing rent is payable as an administration or liquidation expense for as long as the office holder makes use of the premises and is to be treated, for that purpose, as accruing from day to day.
If an administrator, for example, trades from the company's leasehold premises for three weeks, the equivalent of 21 days rent will be payable to the landlord as an administration expense. However, after the administrator ceases to use the premises, no further rent will be payable as an expense even if a new quarter's rent happens to fall due during that three week period.
Samantha Jones concludes: “It will be interesting to see whether this issue goes to the Supreme Court, given the significant impact that it will have on the conduct of administrators. However, for the moment at least, the position seems to be clear and considerably fairer for landlords.”
Further information or advice can be obtained from Prop-Search - Tel: 01933 223300 / 01604 492000 or its website: www.prop-search.com