Commercial Property Briefing
How is rent payable on Administration?
Sharman Law Solicitors
Bedford 01234 303030
Ampthill 01525 750750
There have been recent High Court cases that have brought up the question of whether an
administrator was liable to pay rent that became due before the insolvent company went into
administration, as an expense of the administration.
Previous Case law
In Goldacre (Offices) Ltd v Nortel Networks UK Ltd, rent was payable quarterly in advance. The
relevant quarter day had passed when the company went into administration. Despite the
company vacating the property the court held that the entire quarter’s rent was due to be paid by
the administrator as an expense of the administration.
In contrast, Leisure (Norwich) Ltd v Luminar Lava Ignite Ltd held that rent that was due in
advance and fell before administration was instigated could not be payable as an expense of the
administration.
The Facts
The law has now been clarified in the case of Pillar Denton Ltd and others v Jervis and others.
Game Stores Group traded from several leasehold premises with rent being in paid quarterly in
advance. Rent was due on 25 March 2012, which remained unpaid when the company went into
administration the day after. Six days later the administrators sold the company to Game Retail,
giving them licence to occupy some of their buildings.
The administrators applied to the High Court for directions on how to deal with rent, insurance
and service charges in relation to five leases. Of these, four had granted occupation by the
administrators to Game Retail. It took from the 26 March until the 1 April to complete the sale
arrangements. One of the leases remained in the administrators’ occupation for the primary
purpose of removing goods for the five days between administration and sale.
The High Court decision
At first instance the court followed Luminar, and found that rent and service charges payable on
the day prior to administration were not payable as an expense of the administration, even if the
period in question was after the administrators had been appointed. However, rent, service
charge and insurance premiums payable on the day the administrators were appointed or
afterwards, would be payable as an expense of the administration regardless of whether
administrators ceased using the premises prior to the end of the period in which the rent or
service charge related to.
The Appeal
On appeal, the landlords argued that the quarterly rent was payable as an expense of the
administration under the salvage principle. This principle states that if the company remains in
possession of that property, and this prevents the lessor’s ability to obtain possession, the court
should see that the landlord receives the full value of the property, for its own purpose, and with
the view to selling the property at better advantage, based on common sense and ordinary
justice. The landlords argued this principle should apply as a matter of equity.
On the other side, it was argued that the salvage principle only applied to cases where rent and
other periodical payments were payable in arrear and not payments that were due in the future.
Also, there was no equitable power to apportion payment of rent due.
Judgment
The Court of Appeal found that the salvage principle made rent payable as an expense of the
administration until beneficial possession was obtained. In some cases there may be a few days
between a company going into administration and obtaining beneficial possession. On the other
hand, beneficial possession may also end before possession is given up.
This principle was distinguished with the adoption of a contract by an insolvency officer. The
adoption of a contract would allow liability to continue in relation to that contract. Where as, the
salvage principle would only give rise to liability for the duration the premises were retained by the
estate for the benefit of the administration.
The Court held that during the period of retention of premises the administrator must pay rent,
treated as accruing on a daily basis. In addition, payments due in advance during a retention
period should be dealt with on a “wait and see” approach.
It is worth noting here, that the case may be appealed to the Supreme Court, so this may not be
the last we hear on this point.
Additionally, it may be presumed that administrators will now have to reserve funds for potential
claims from Landlords wanting to recover rent, as an expense of the administration that was due
before the company went into administration.
If you would like any further information on this point feel free to contact Simon Parrott or Philip
Botterill.
www.sharmanlaw.co.uk