Author: Alison Mould
Following the changes made to insolvency legislation a few years ago, the main type of insolvency with which we now deal is that of Administration. Law of Property Act Receivers tend to be appointed in relation only to foreign companies, Administrative Receivers are effectively being phased out and Company Voluntary Arrangements (CVAs) are less fashionable. Administration is popular because it creates a moratorium which disentitles a landlord, without the leave of the Court or the permission of the Administrator, to forfeit, distrain or bring any form of proceedings.
It has been accepted for some time that Administrators will pay the passing rent for the period that they allow the property to be used for the purposes of the Administration. For example, if an Administrator is appointed on 14 February 2010 and uses the premises to 28 April 2010, then Administrators will accept liability for the rent due on a daily basis from 14 February to 28 April and landlords will be paid this sum.
Further, following analogies with rates liability, that rent has been paid as an expense of the Administration i. e. out of the pot of the company’s assets before the Administrator is even able to take his fees.
This liability has recently been confirmed in Goldacre v Nortel. The decision is one in the High Court and therefore carries some weight. It is not being appealed. The decision applies retrospectively.
The Court ruled that the Administrator is liable for the whole quarter’s rent even if only part of the premises are being used.
The exciting part of the decision in this case is, however, that the Administrator is liable for the rent, not on a daily basis, but for the quarter in which he uses the premises. The case held, in the example I have given above, that the Administrator was liable for the whole of the rent that fell due on 25 March 2010 as an expense of the Administration. Previously, Administrators had apportioned their rent payment to the date they no longer utilised the premises.
The case did not consider whether the Administrator was liable for the whole of the quarter’s rent which fell due, in our example, on 25 December 2009 but, using the same analysis as the Court did in the case, it would appear that the whole of that quarter’s rent is also due as an expense in the Administration.
This is good news for landlords. It means that landlords can be certain that, at least while the premises are used by the Administrator for the purposes of the Administration, their quarter’s rents will be paid in the normal way.
As the decision is retrospective, it has also given rise to a series of claims. Landlords who accepted a proportion of a quarter’s rent from Administrators are now likely to be entitled to the balance of those quarters’ rents from the Administrator.
It may, therefore, be worth landlords checking through their records to see if there are outstanding parts of quarters’ rents that are now due from the tenants’ Administrators.
Alison Mould, Partner, Fladgate LLP (firstname.lastname@example.org)