If rent is payable in arrear and the tenant company goes into administration or liquidation the administrator or liquidator must pay the rent as an expense of the liquidation or administration for any period during which he retains possession of the property for the insolvency work. If appropriate that liability will be apportioned by time so as to reflect, the amount of the benefit.
Where in contrast the rent is payable in advance , its been a vexed question whether part of an instalment of rent payable in advance can be treated as an administrators’ expense payable by administrators in the event of insolvency.
Two first instance decisions decided that it could not.
In Goldacre (Offices) Ltd v Nortel Networks UK Ltd [2009] it was decided that if a quarter’s rent (payable in advance) fell due during a period in which administrators kept the property for the purposes of the administration, the whole of the quarter’s rent was payable as an administration expense even if the administrators gave up occupation later in the same quarter.
In Leisure (Norwich) II Ltd v Luminar Lava Ignite Ltd [2012] it was decided that where a quarter’s rent payable in advance fell due before administration none of it was payable as an administration expense even if the administrators kept possession for the administration. The rent was merely provable as a debt in the administration.
As a result of those decisions it had become more common for companies to enter administration on the day after a quarter day, so avoiding the administrators’ liability to pay full rent even if they kept possession of the leasehold property.
So where the business was sold quickly to a phoenix company that company could effectively trade for the first three months with no rent having to be paid to the landlord.
It might be thought that if landlords managed to establish that part of an instalment of rent payable in advance could be treated as an administration expense, then the same principle should work both ways. On that basis, if rent payable in advance fell due during the period when the administrators kept possession, it would also have to be apportioned in favour of the landlord to the extent that they remained in possession during the quarter.
In Pillar Denton Ltd & Ors v Jervis & Ors [2014] one of the Game group of companies (“GSGL”) was the tenant of many hundreds of leasehold retail properties from which the group traded. On 25 March 2012 approximately £10 million of rent became due under the various leases. It went unpaid. The group went into administration on the next day.
Some stores were closed down immediately, but others stores continued trading continued in other stores and they were quickly sold to Game Retail Ltd. Approximately £3 million of the March rent remained outstanding in respect of those stores.
The Court of Appeal decided that rent payable in advance should be dealt with in the same way as rent payable in arrear so that the administrators must pay rent at the rate payable under the leases for the duration of their keeping possession of the let property for the benefit of the winding up or administration. They said that the rent is to be treated as accruing from day to day.
Those payments would be payable as expenses of the winding up or administration.
The extent of the period would be a question of fact in each case and not just decided according to which rent days occur before, during or after that period.
This blog has been posted out of general interest and it does not remove the need to get proper legal advice in individual cases.
Original article: The Game is Up for Insolvency Practitioners -v- Landlords.