Liability for Rent in Company Insolvencies
Liability for Rent in Company Insolvencies06 March 2019 Written by James & George Collie

streetA recent case from the Court of Appeal in England and Wales has been hailed as a landmark case and is welcome news to landlords.

The case of Pillar Denton Ltd & Others v Jervis & Others, 25 February 2014 considers whether part of an instalment of rent payable in advance under a lease should be treated as (a) a provable unsecured debt in an administration or (b) an expense of the administration (and therefore being paid in priority to unsecured debts).

Background

The case relates to the entertainment technology, Game group of companies who were tenants under hundreds of leases with some of the biggest landlords in the UK.  The rent for most of their properties was payable quarterly in advance on the English Quarter days.  Game went into administration on 26 March 2012, the day after the English Quarter day (25 March). Game had not paid any rent due. The Administrators also did not pay any rent, but they continued to trade from some of the stores throughout the remaining rent quarter.

Position prior to this case

Prior to the decision in this case, the position was based on the cases of Goldacre (Offices) Ltd –v- Nortel Networks UK Ltd (2011) and Leisure (Norwich) II ltd –v-Luminar Lava Ignite Ltd (2013) in that where a quarter’s rent was due in advance, the whole quarter’s rent could not be apportioned.  This meant that where a company went into administration after the rent quarter had fallen due, the rent for the period of occupation from the administrator’s appointment up to the next quarter day was not recoverable as an expense of the administration but only as an unsecured debt in the administration.  With landlords having to prove alongside other unsecured creditors, they were unlikely to recover very much rent even though the premises were in occupation and use because the administrators were in effect able to trade from the property for 3 months, rent free.

Decision

The Court of Appeal in the Pillar Denton case overruled the decisions in Goldacre and Luminar, allowing the Landlords appeal on the basis of applying the “salvage” principle and thereby now having a “pay as you go” rent for companies in administration, meaning:

“that the office holder must make payments at the rate of the rent for the duration of any period during which he retains possession of the demised property for the benefit of the winding up or administration (as the case may be). The rent will be treated as accruing from day to day. Those payments are payable as expenses of the winding up or administration. The duration of the period is a question of fact and is not determined merely by reference to which rent days occur before, during or after that period”.

Consequences of the Decision

For Landlords, this means that regardless of the day the tenant enters into Administration, rent should be paid in full by the Administrators for the entire period of their use/occupation of the property for the benefit of the administration.

For Administrators, this means that where rent solely relates to that period during which the Administrator retains possession of the property for the benefit of the Administration, that rent will be payable as an expense of the Administration.  Therefore careful planning will be required by Administrators considering any administration with lease obligations.

Whilst the Pillar Denton case was decided under English Law, the general principles should apply to Scots Law as well and also to other forms of insolvency such as liquidations and receiverships.

For further information on this topic, please contact Commercial Property Solicitor, Caren McNeil, by email at This email address is being protected from spambots. You need JavaScript enabled to view it.

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