Rent as an expense of an administration – an update

Year Published: 2013

The frustration felt by insolvency practitioners and landlords alike as a result of the decisions in Goldacre (Offices) Ltd v Nortel Networks UK Ltd and Leisure (Norwich) II Ltd v Luminar Lava Ignite Ltd may soon be at end, as the High Court has granted permission for this issue to be taken to the Court of Appeal, following our previous article: Landlords beware: watch out for canny administrators.

In Games Station Limited (2013) and others, the High Court (whilst following the principles set out in these decisions) granted permission for the landlord to appeal to the Court of the Appeal on the extent to which rent and service charges should be treated as an expense of the administration – on the grounds that the appeal had a real prospect of success.

These decisions have resulted in a situation whereby:

  •  rent, payable in advance, which falls due whilst the administrator is in occupation of the property, for the purposes of the administration, will rank as an administration expense for the entire sum due (thereby being paid in priority to the costs of the administration); but
  • rent, payable in advance which falls due before the administration is in occupation of the property does not rank as an expense (leaving landlords only able to prove as an unsecured creditor in the administration and thereby being paid after the costs of the administration).

As a consequence a practice has arisen whereby companies are seeking the protection of administration immediately after the ‘quarter date’ when the rent becomes payable. Landlords therefore find themselves facing the second of the two scenarios set out above.

A decision from the Court of Appeal which clarifies this situation would be welcome.

The Court of Appeal could do much worse than to revert to the position pre-Goldacre, when administrators paid rent only to the date that the property was unoccupied by the business and insolvency administrators had concluded their work, which provided fairness to both the insolvency practitioners and landlords.

In the interim, all parties involved with these issues will face some uncertainty.

If you require any further information or assistance please contact Paul Formby in our dispute resolution team on 0844 391 5858.

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