Author: Alison Mould
Back in 2009 landlords secured what they thought at the time was a victory over administrators. They argued, in court, that when a company went into administration, the administrator, as an expense of the administration, should be liable for the whole of a quarter’s rent if the period of the administration straddled a quarter day.
Prior to 2009 administrators had paid landlords rent at a daily rate for the period for which they used the premises for the purposes of the administration. If a company went into administration on 15 March 2006 and came out of administration on 15 July 2006, then the administrator would pay a daily rent from 15 March to 15 July to the landlord as an expense of the administration, i.e. before its own charges.
The successful decision in a case called Goldacre in 2009 meant that the administrator was liable for the whole quarter’s rent.
That meant, in the example above, that if the company went into administration on 15 March and the administration ended on 15 July the administrator, if using the premises for the purposes of the administration, was liable for the whole of the March and June quarters’ rents on the basis that the whole of the rent fell due on the quarter day. This was perceived at the time to be a victory.
However, administrators exhibited some cunning. What we found was that companies went into administration on the day after a quarter day, i.e. 26 March 2010, and came out of administration on 23 June 2010. That period did not straddle a quarter day, and consequently administrators had no liability for rent as an expense of the administration. Administrators saved thousands of pounds, literally.
The Court of Appeal, however, in a decision regarding the GAME chain of shops has altered the position.
The law, following the GAME decision which was reported earlier this year, is now as it was in the past, namely that the administrator, when using premises for the purposes of administration, must pay the rent as an expense of the administration for the period for which the premises are used, i.e., using our earlier example, from 15 March to 15 July.
The case does not indicate when this payment is to be made and in a lengthy administration it may be necessary for some landlords to apply to court to trigger payment. One would hope, however, that administrators are up front about this and arrange payment on a regular, perhaps monthly, basis.
Of course, not knowing when a sum falls due, i.e. payment of a daily rate for the period of use, will not help landlords who are considering forfeiting the lease for non payment of rent. And in an administration, either the position of the administrator or the leave of the court is required. Enforcing the strict terms of the lease may prove more problematic than ever.
Alison Mould, Partner, Fladgate LLP (firstname.lastname@example.org)