We have covered the issue of claiming rent against administrators on a number of occasions. However the issue of how much rent administrators of insolvent companies are obliged to pay remains a developing legal issue.
The Administration of the retail computer company, Game Group, has created a substantial amount of litigation (not least the earlier Charles Russell case of Game UK v Lazari [2012]). On the 1 July 2013 the High Court (Chancery Division) heard an application by administrators for directions and, when doing so, gave the landlord respondents permission to appeal to the Court of Appeal on the issue of the extent to which rent and service charges falling due both before and after the appointment of administrators were to be treated as expenses of the administration.
This was the question raised in the case of Goldacre (Offices) Ltd v Nortel Networks UK Ltd (In Administration) [2010] Ch. 455. In this case the Court held that administrators obligation to pay rent (where the property was being used) in full compliance with the lease. The administrators of Nortel had tried to pay only the rents for the part of the property the company still actually used. However the full extent of the property actually leased was very large and the court held that if the administration was making use of any part of the property then the tenant administrator should pay rent for the whole (as an "expense" of the administration). This principle was then extended by the case Leisure (Norwich) II Ltd v Luminar Lava Ignite Ltd (In Administration) [2012].
In the latest case the applicant administrators of the Game group applied to the court for directions, relating to the priority of the payment of rents and service charges (together with other charges falling due under the lease during the period of the administration). The Game Group was a High Street retailer and through subsidiaries was the tenant of a number of stores. The rent was payable in advance on the usual quarter days. The administrators had been appointed the day after the quarterly rent fell due under a number of leases. The landlords under a number of sample leases are the respondents to the application.
Following Goldacre v Nortel and Leisure (Norwich) II Ltd v Luminar Lava Ignite Ltd the position appeared to be that;
a) where rent was payable in advance and fell due for payment prior to the commencement of the administration, then it was not payable as an administration expense even though the administrator retained the property for the purposes of the administration for the whole or part of the period for which the payment in advance was payable;
b) however where rent payable in advance became due during a period when the administrator was retaining the property for the purposes of the administration, then the whole sum was payable as an administration expense even though the administrator forfeited or vacated before expiry of the period for which the payment in advance was due. Also the full rent was payable even if only part of the property was being used.
Now, in this new case, the Game landlords are challenging the proposition that the rent and service charge that fell due the day before administrators' appointment was not an administration expense. The landlords argue that this creates a highly unfair set of circumstances as an administrator can delay an administration to take effect for a day (or any short period) so that the administration commences after a quarter day (or after any day when the rent falls due). On the basis of Leisure (Norwich) II Ltd v Luminar Lava Ignite Ltd the administrator can thereby obtain use of a property without incurring any liability to pay the rent as an expense (the rent would be left as an unsecured debt without priority).
In the Chancery Division's primary decision, it was held that the decisions in Goldacre and Luminar would be followed and it made directions to the effect that the quarterly rent and service charge which fell due immediately before the administration were not administration expenses, and that rent and service charge falling due following the administrators' appointment would be payable in full as an expense even if they thereafter ceased to use the premises.
However, at the same time, a chancery judge, Nicholas Lavender QC, gave permission to the landlords to appeal so that the Court of Appeal could rule on the issues; On the basis that the matter was of concern to administrators and landlords generally and the amounts involved in the instant case were significant.
We must now wait for the Court of Appeal to determine this recurring issue once and for all.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
