Game on for landlords! Rent is to be treated as an expense of an administration or liquidation
The importance of the decision
The “pay as you go” principle has returned to the treatment of rent in administrations and liquidations. In Jervis v Pillar Denton Ltd and others the Court of Appeal this week overruled the previous decisions of Goldacre and Luminar.
Landlords will be pleased to learn that as a result of the decision:
- Rent must now be treated as an expense of the administration or liquidation; and
- Rent will accrue on a daily basis for so long as the administrator or liquidator retains possession of the property.
There is nothing unusual in this concept. However, the decisions of Goldacre and Luminar in 2009 and 2012 respectively had put both landlords and administrators and liquidators in a difficult position because:
- Where rent was payable in advance and the office holder was appointed after the rent date had passed, rent was not an expense but an unsecured claim in the insolvency of the company. As a result, the office holder was entitled to make use of the premises until the next rent date rent-free, whilst the landlord was left to claim as an unsecured creditor and could not forfeit or peaceably re-enter without the leave of the administrator or the court.
- However, where the administrator or liquidator was appointed before the rent fell due and the office holder was still in occupation when the next rent day came around, rent was treated as an expense. This was of obvious benefit to landlords who would be paid in priority to other debts of the company.
Therefore, as a result of the Goldacre and Luminar decisions, the date upon which rent was due became a critical driver in the timing of administration appointments. It became common for companies to enter into administration on the day immediately following a quarter day – when rent is due – therefore avoiding liability to pay the rent in full, even if the office holder retained possession of the leasehold premises.
Recitifying the balance
The Court of Appeal’s judgment in Game Station is beneficial to insolvency practitioners and landlords alike. Following the Court of Appeal's decision in Game Station, it now makes no difference whether the rent days occur before, during or after the appointment of the office holder. From now on, the office holder must make payments at the rate of the rent for the duration of any period during which he or she retains possession of the property for the benefit of the winding up or administration. The rent will be treated as accruing from day to day and is payable as an expense of the winding up or administration.
The “pay as you go’ principle on rent in administration assists an administrator in the rescue of the business by providing more certainty on the respective claims of stakeholders in the business. For landlords, it gives a fairer deal. Now, landlords do not have to consider not receiving rent for continued occupancy in an administration as rent is usually payable on a quarterly basis, previous law meant that administrators could trade the business from the leasehold premises for as long as three months, with little recourse of enforcement and only sharing the pot with other unsecured creditors. For companies and office holders, insolvency appointments are unlikely now to be artificially delayed until after the rent due date. Administration is a rescue procedure for the benefit of creditors of the company as a whole and therefore this decision makes both commercial and common sense.
However much common sense this decision may make, an appeal to the Supreme Court is possible.
Goldacre (Offices) Ltd v Nortel Networks UK Ltd (in administration)  EWHC 3389 (Ch)
Leisure Norwich (2) Ltd & Others v Luminar Lava Ignite Limited & Others -  EWHC 951(Ch)
Pillar Denton Limited and Ors v Jervis & Ors  EWCA Civ 180 (24 February 2014)