A decision has been handed down from the Court of Appeal in the case of Game Station (Jervis –v- Pillar Denton). The decision granted landlords Land Securities, British Land, Hammerson and Intu the right to recover rent from administrators that operated a retail business as a going concern whilst a buyer was sought, despite the rental payment date falling before the date of the administration.
These Landlords left out of pocket in the Game administration were granted leave to appeal to the Court of Appeal to challenge whether rents accruing just prior to the appointment of the administrators should to be treated as an expense of the administration (and therefore paid in priority to other creditors) The appeal was sought to overturn the position established in the previous Goldacre and Luminar decisions.
The consequence of this decision was that companies were strategically entering into administration on the day immediately following a quarter date, therefore avoiding rental liabilities in full even if they continued to retain possession of the leased property for the whole of the quarter.
Game appointed administrators shortly after the quarter day and it is reported that they avoided paying several millions of pounds in rent before selling the business to a new owner.
The principles previously established in cases of this nature were that:-
(1) Where rent is payable in advance and falls due for payment before the administration starts, it is provable but not payable as an administration expense even though the administrator retains the property for the purposes of the administration for the whole or part of the period for which the payment in advance was payable;
(2) Where rent payable in advance becomes due during a period when the administrator is retaining the property for the purposes of the administration, the whole sum is payable as an administration expense even though the administrator gives permission to forfeit or vacates before expiry of the period for which the payment in advance is due (the decision in Goldacre (Offices) Ltd v Nortel Networks UK Ltd).
In the case of Leisure Norwich (II) Ltd and others v Luminar Lava Ignite Ltd (in administration) and others, the Court upheld the decision made in Goldacre. The court confirmed that advance quarterly rent falling due prior to the appointment of administrators is not payable as an expense, even if the company continues to trade from the property during the remainder of the quarter.
The Game decision marks a shift away from these principles. The decision will find favour with landlords as the timing of administration, as was the case here, will put an end to administrators being legally entitled to continue to use rented premises for up to three months. Landlords previously had to seek rental liabilities as an unsecured creditor but now such liabilities return to be viewed as an expense of the administration and will be treated as accruing from day to day.
We at Blacks deal with all aspects of property law and insolvency, acting for both landlords and tenants in all matters arising in respect of leases as well as dealing with administrations.
Please contact Luke Patel
on 0113 227 9316
or by email at LPatel@LawBlacks.com
