The rule established in Goldacre v Nortel is concerned with the ability of landlords to recover rent from those tenants who are in administration. It initially caused great happiness for landlords, but then consternation as tenants and their administrators exploited it to their advantage.
As the law stands, once a tenant is in administration and is using the premises (even only part of them) for the benefit of the administration, rent becoming due is payable in full as an administration expense (i.e. in preference to other categories of the tenant's debts and therefore likely to be actually recovered by the landlord). Landlords' initial excitement at the decision was quickly scotched, when administrators began routinely placing tenants into administration immediately after a quarter day with that quarter's rent already in arrears. This (perhaps unforeseen) corollary of the Goldacre decision - which was confirmed by the decision in Luminar Leisure - is that rent arrears falling due prior to the administration are equally not apportioned; they fall to be proven in the usual way, meaning a landlord has no better claim to payment than any other unsecured creditor (and is usually very unlikely to be recovered by the landlord).
Re Game Station and Others has been referred to the Court of Appeal on a fast tracked basis. It represents the attempt of four landlords to overturn the ruling in Goldacre to allow them to apportion rent which fell due before an administration, and allow them to recover, as an administration expense, rent due in respect of the period the tenant is in administration, regardless of the fact that it fell due prior to the administrator's appointment.
Success for the landlords would mean an end to the practice of tenants carefully timing when they go into administration to gain a 'free' rental period whilst they trade down the business or line up a purchaser. Doing so will not be an easy call for the Court of Appeal if it happens. The (long-established) law on apportionment (which gave rise to the conclusions reached by the court in Goldacre and Luminar) will need to be circumvented somehow if what most parties feel would be the 'fair' position is to be reached.
Landlords, tenants, lawyers and insolvency practitioners will be awaiting the outcome of the case with some interest.
First appeared in Informer: Real Estate Newsletter - Autumn 2013
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