The Court of Appeal has handed down the long awaited judgment in Re Games Station, in an important ruling for administrators and landlords.
Prior to this judgment, due to the well-known cases of Goldacre and Luminar – where rent was payable in advance under a lease (as is normally the case) and an administrator was appointed after the rent date had passed – the outstanding rent would have been regarded as an unsecured debt and the landlord would have been unlikely to recover the entire sum owed. On the other hand, if the administrator was still in occupation when the next rent day came around, the rent would be treated as an expense of the administration and therefore it would be paid in priority to the other debts of the company.
The key points arising from this decision are as follows:
- Where an administrator or liquidator makes use of leasehold property for the purposes of an administration or winding up, then the rent is payable as an expense for the period during which the property is used and will be treated as accruing from day to day for that purpose. This is the case whether the rent is payable in arrears or in advance.
- The date on which a quarter’s rent becomes payable, and whether that is before, during or after the period during which the property is used for the purposes of the administration or liquidation, is irrelevant.
The background to the case is that the video games retailer, The Game Group Plc, suffered financial difficulties causing it to go into administration on 26 March 2012, the day after the March quarter day. Relying on Goldacre and Luminar, the administrators refused to pay the rent which was due on 25 March 2012 and continued to trade from the property rent-free until the next quarter day. The High Court took the view that the administrators were within their rights to do this, but permission to appeal was granted and Goldacre and Luminar were overruled.
The decision will be welcomed by landlords who should no longer face situations where a property is used by administrators for almost an entire quarter with no rent or service charge being paid. At Harrison Drury, we make it possible for all parties involved in administrations and other insolvency processes to fully understand their legal rights and obligations and to recover what is owed to them.
James Robbins is a member of Harrison Drury’s Insolvency & Business Recovery team. For more information, please contact James on 01772 258321 or firstname.lastname@example.org.