A consortium of landlords is celebrating an important decision made by the Court of Appeal on Monday that will see them being paid millions of pounds of unpaid rent by Game Station Limited.
The decision will have a more widespread impact on the property and insolvency industry and in particular will see tenants in administration paying their landlords rent, accruing on a daily basis, for the actual period that the property is retained for the benefit of the administration. Struggling tenants will no longer be able to secure an effectively rent free period of trading to assist with post-administration restructuring but neither will they have to pay for anything more than the period that they actually use the premises. The common sense decision seems to have restored fairness for all involved.
The High Court Decision (2013)
Much to the dismay of the consortium of landlords the High Court last year agreed with Game’s administrators that they did not need to pay the March 2012 quarters rent to landlords whose properties Game continued to trade from after the appointment of its administrators. The administrators were appointed, rather conveniently, just one day after the March 2012 quarters rent fell due and Game continued to trade from those premises effectively rent free for that period before the business and its assets were sold on. The principle applied by the High Court was that where rent is payable in advance and falls due for payment before the administration starts, it is provable but not payable as an administration expense even though the administrator retains the property for the benefit of the administration. The landlords appealed.
The Court of Appeal Decision (24 February 2014)
The Court of Appeal allowed the landlords’ appeal and stated that rent must be paid for the duration of any period that the administrator retains the property for the benefit of the administration. It also stated that the rent will be treated as accruing from day to day and those payments are payable as expenses of the administration.
The Court of Appeal also allowed Game’s cross-appeal and found that if rent payable in advance falls due during the period when administrators are in possession, that rent must also be apportioned so that the administrator only need pay rent for the duration the administrator is in possession and not the full quarters rent falling due in advance. This means that if rent falls due on 25 March 2014, an administrator is appointed on 26 March 2014 and the administrator retains the premises for the benefit of the administration until 26 April 2014, the full March quarters rent will not be payable but only apportioned rent for the period 25 March 2014 to 26 April 2014.
The decision will have a widespread impact on landlords, insolvency practitioners, creditors and buyers of distressed businesses. It will be interesting to see how, and to what extent, market practices change in response to the decision over the next few months including how rental payments will be made, recovered and apportioned in practice. For administrators it will see a subtle shift in how they plan the business as rent payment dates become tactically irrelevant.