10 March 2014
Administration Rents: Goldacre Overruled
Practice Group(s):
By Jake Ferm, Edward Smith and Bonny Hedderly
Real Estate
Investment,
Development, and
Finance
Summary
An important recent Court of Appeal decision, Pillar Denton Ltd and others v Jervis
and others; re Games Station [2014] EWCA Civ 180, has overruled the controversial
“Goldacre Ruling” and significantly changed the law on how rent is paid during an
administration. The Games Station decision means that, where an administrator uses
leasehold property for the purposes of the administration, the reserved rent will be
payable pro rata as an expense of the administration for the period for which the property
is used. This decision will be welcomed by landlords who no longer need be concerned
by the tricky and arbitrary rules surrounding administration rents which threatened to
leave them out of pocket.
Background
Previously, as a result of the “Goldacre ruling” (Goldacre (Offices) Limited v Nortel
Networks (UK) Ltd [2010] All ER (D) 54 (Jan)) and the Luminar decision (Leisure
Norwich (II) Ltd and others v Luminar Lava Ignite Ltd (in administration) and others
[2012] EWHC 951 (Ch)), administrators had to pay rent as an “administration expense” if
the rent only fell due after their appointment and they had used the property for the
purposes of the administration. Administration expenses are paid in priority to debts in an
administration or liquidation so rent payable as an administration expense is accordingly
more likely to be paid in full than rent payable as a debt.
The timing of the appointment of administrators was often tactical. If administrators were
appointed shortly before a quarter day, the rent for the entire quarter would be payable
as an expense of the administration, regardless of whether the premises were used for
the purposes of the administration for the whole of this period. On the other hand,
administrators appointed just after a quarter day could effectively enjoy a rent-free period
for the following quarter. The timing of the appointment of administrators could arbitrarily
determine whether or not a tenant’s business would survive and whether or not landlords
would receive rent.
The Game Station Decision
The Court of Appeal had to consider an application led by the administrators of Game
Group, and a consortium of landlords. Game became insolvent in March 2012, and had
owned several hundred stores which it operated from a variety of leasehold premises. As
is typical, the rent was payable on the usual quarter days, quarterly in advance. The
administrators were appointed the day after the quarter day and disposed of the business
before the next quarter day. According to the Goldacre ruling, they could stay in the
premises at the expense of the landlords, because the quarter’s rent would rank as an
unsecured claim, meaning that administrators could avoid paying several millions of
pounds in rent before selling the business on to the new buyer. The Court had to rule on
whether the administrators had to pay rent “as an expense of the administration” in
priority to the other unsecured debts.
Administration Rents: Goldacre Overruled
The Court of Appeal held that where an administrator or liquidator makes use of
leasehold property for the purposes of the administration or winding up, then the
reserved rent is payable as an expense for the period during which the property is so
used and will be treated as accruing from day to day. In other words, landlords are
entitled to rent payable pro rata as an expense of the administration for the number of
days for which the premises are used for the purposes of the administration or winding
up. The date upon which a quarter’s rent becomes payable, and whether the
administrators are appointed before or after that date, is irrelevant.
Conclusion
The decision re-winds the clock to the more pragmatic pre-Goldacre ruling position.
Landlords no longer need be concerned by the risk of a tenant strategically entering
administration just after a quarter day and avoiding rent payment obligations. On the
other hand, tenants entering administration just before a quarter day will no longer be
required to pay in full a quarter’s rent regardless of whether the property is in fact used by
the administrators for the entire period. The Game Station decision provides a muchneeded simplification of the rules regarding administration rents and, as such, should be
welcomed by landlords and tenants alike.
Authors:
Jake Ferm
Edward Smith
Bonny Hedderly
jake.ferm@klgates.com
+44.(0)20.7360.8267
edward.smith@klgates.com
+44.(0)20.7360.8189
bonny.hedderly@klgates.com
+44.(0)20.7360.8192
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