While the number of company administrations has not changed significantly in recent years, the question of whether rent should be paid by the administrator of the company has become increasingly controversial.
By way of background, if the premises have been retained to enable the administrator to continue running the company's business or otherwise for the benefit of the administration, then the rent is payable as an "expense" of the administration. The effect is that the rent is payable in priority to the claims of other creditors and, indeed, in priority to payment of the administrator's fees. Traditionally, the principles for payment of rent were understood to follow the rules which applied to liquidations, with the Court having a discretion as to the extent of the liability. The element of discretion was understood to allow an administrator to only pay for the period that the premises were actually used, regardless of when the rent fell due. However, this changed with the decision in the case of Goldacre (Offices) Limited v Nortel Networks (2010), in which the Court held that there was no discretion and the whole of the rent would be payable. In the Goldacre case the administrator was using only part of the premises. Nevertheless, the Court held that the rent for the whole of the premises was payable as an expense. While the Goldacre case was a victory for the landlord, its consequences have not worked to the advantage of landlords generally.
It followed from the decision that, as rent is invariably payable quarterly in advance, if the premises were being used for the benefit of the administration on the quarter day, then the whole of the quarter's rent would be payable, regardless of whether the administrator vacated part way through the quarter.
This was confirmed in the subsequent case of Leisure (Norwich) II Limited v Luminar Lava Ignite Limited (2012), which demonstrated the other side of the coin, in that the rent fell due on the quarter day prior to the appointment of the administrator was not payable as an expense, even though the administrator was using the premises for part of that quarter.
As a result, the timing of the appointment of the administrator has become of critical importance. If the timing of the appointment can be manipulated, so that it takes place immediately after a quarter date, the administrator can obtain the benefit of the premises without payment, provided that he vacates before the next quarter day.
Landlords have not taken this lying down and litigation has arisen following the administration of the Game group of companies, which went into administration on 26 March 2012, significantly the day after the March quarter day. The case, Re Game Station Limited (2013) was heard in the High Court, who was bound by the decisions in Goldacre and Luminar and ordered that no part of the rent due on 25 March was payable. An appeal to the Court of Appeal is being fast tracked and due to be heard in February 2014.
In the meantime, the Supreme Court has indicated a more flexible approach in the Nortel Networks UK Pension Trust case (2013), which may signal a more flexible approach by the Courts. If this is reflected in the Supreme Court in deciding the Game Station case, then there may be a return to the "pay as you go" approach to the payment of rent during an administration.
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