25 February 2014

Game is up for administrators: advantage landlords

On 24 February, The Court of Appeal delivered a landmark Judgment relating to the recovery of rent from a corporate tenant in administration where the administrators continue to make use of the premises after their appointment.

In Pillar Denton Ltd & Ors v Jervis & Ors [2014] EWCA Civ 180 (commonly referred to as Re Game Station Ltd) the Court has ruled that rent relating to any period of occupation of any part or the whole of the premises by an administrator for the purposes of the administration will be payable on a day by day basis and will rank as an administration expense, meaning that such rental payments are payable as a priority out of the assets of the tenant.

This overrules previous case law which allowed administrators to avoid incurring rent as an administration expense for up to 3 months by delaying their appointment until the day after the quarter day upon which rent becomes payable in advance.

Under previous case law the position was as follows:

  • Rent arrears for periods prior to the appointment of an administrator are not recoverable as an administration expense. This remains the position and a landlord’s only real remedy is to seek to forfeit the lease.
  • Where rent is payable in advance and falls due before the appointment of an administrator, none of that rent for the rent period during which the administrator is appointed is deemed to be payable as an expense of the administration. It is simply a provable debt which the landlord must attempt to recover as an unsecured creditor.
  • Where rent is payable in advance and falls due during the period of administration, the whole rent is payable as an expense of the administration and there will be no apportionment of that rent even if the administrator vacates the premises before the end of the quarter.

This Judgment means that an administrator will incur liability to pay rent as an administration expense at a ‘daily rate’ whilst trading continues at any premises and that the rent will be recoverable by the landlord as an expense of the administration in priority to other expenses and the claims of other creditors.

This decision is welcome news for landlords and the key points from the judgment of the Court of Appeal are as follows:

1. If the administrator occupies the premises for the benefit of the administration, the rent which accrues during this period will rank as an expense of the administration. Furthermore, as it will be an expense properly incurred by the administrator in performing his functions, it will be prioritised over other expenses of the administration such as administrator’s fees.

2. It is now irrelevant whether the administrator was appointed before or after the quarter day. The rent will be treated as accruing day to day and the expense is not avoided by simply appointing the administrator after the quarter day.

3. The duration of the period of occupation is a question of fact and it is not determined by reference to the rent days which occur before, during, or after that period.

4. Administrators will not incur a full quarter’s rent as an administration expense if the premises are not occupied for the full quarter but, instead, the amount will be apportioned (with any balance being treated as an unsecured debt).

Is it truly Game, Set and Match for landlords? It is quite likely that this case will go to the Supreme Court on further appeal as the Administrators will seek to appeal although the Court of Appeal has refused its permission to do so. However in the meantime, landlords should ensure that rent accruing during the administrator’s period of occupation is recovered as an expense of the administration and that checks are undertaken to establish if the premises are being used or not.

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