In recent Court decisions, the balance between Administrators and Landlords has shifted backward and forwards with great regularity. Both sides have just learned that the goal posts have moved once more.
The judgment from a unanimous Court of Appeal last week has overruled the previous authorities on the issue of whether rent is payable as an expense in an Administration. In light of the decision in Jervis v Pillar Denton Ltd and Others, the decisions in Goldacre and Luminar are no longer of any effect.
After the Goldacre decision, landlords knew that where a tenant was in Administration any rent falling due under a lease during the Administration would be payable in full as an expense. This was regardless of whether the Administrators made use of or occupied the property or part of the property for the whole of the rental period.
However, the joy of landlords after that decision was short-lived after the decision in Luminar. In Luminar it was held that any rent falling due prior to a tenant going into Administration was simply a provable debt, regardless of whether the Administrators remained in occupation throughout the rental period.
As a result, insolvency practitioners would often advise insolvent tenants to enter Administration the day after the quarter date. The landlord would not have time to peaceably re-enter and its hands would be bound by the moratorium once the Administration came into effect.
Jervis v Pillar Denton Ltd concerned the much publicised administration of the GAME retail chain, in respect of which Administrators were (unsurprisingly) appointed the day after the quarter date.
The Court of Appeal has held that contrary to prior authority, the correct position is that where an Administrator has the benefit of a property, the reserved rent is deemed to accrue on a daily basis. This means that for the period in which an Administrator is in occupation, he must now pay the relevant proportion of the rent as an expense.
This seems to us to be a common sense solution to the potential inequity caused by the previous precedent. The question that now arises from the Game decision is when is an Administrator “in occupation”? No doubt, great time and costs will be invested on this point before the Courts provide us with a final answer.
The Game decision may be subject to appeal to the Supreme Court and being an issue of such widespread importance, it could well be considered to deserve scrutiny at the highest level. However, whilst neither landlords nor Administrators can predict the outcome of any further appeal, landlords will be rather more confident of their position, bearing in mind the quality of the reasoning handed down by the Court of Appeal.
Teacher Stern has a qualified team of Insolvency Specialists, dealing with restructuring and wider Insolvency issues. If you would like to know more please contact Navinder Grover or Lee Donoghue.
We also enjoy a very highly regarded Property Litigation team. If you would like to discuss the property aspects of this decision, please contact Colin Richman.
