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Published 27 February 2014
Landlords, tenants and administrators should all welcome the decision delivered by the Court of Appeal on Monday this week regarding the administration of the Game Group of companies and how rent should be paid and classed by administrators during a period of administration. Background of Game Case
Under the law prevailing before Monday's decision, administrators of a failing tenant effectively had a three month rent free period if the date of administration was timed to follow immediately after a quarterly rent payment date. Administrators might also have to pay a full quarter's rent even if the relevant premises were only trading for say the first week of the quarter.
Basing its judgment upon the "common sense and ordinary justice" of a long line of insolvency cases, the Court of Appeal has now ruled that administrators should pay rent on a daily basis for any period they use property for the benefit of the administration, and further that the administrators' payment must be made as an expense of the administration, meaning that the administrators must pay the relevant rent to landlords in priority to other unsecured creditors. The actual duration of daily rent will be a question of fact in each instance.
Subject to any appeal Game might make, good sense has finally won the day.
Landlords now know that, if a property is used during an administration, they can expect payment from the administrators by reference to the property's use and there is no prospect of a tactical administration date. Administrators might have lost the potential of a rent free period but they have certainty that they will not over pay for a period when the property is not used by them.
It will be very interesting to see how the decision pans out in practice. Landlords will wish to review previous rent free periods relied upon by administrators and consider whether the relevant debt can be reclassified as an expense of the administration. They will also be concerned about the cashflow consequences of the 'pay as you go' arrangement - the underlying lease arrangement will of course ordinarily be based upon instalments being paid monthly or quarterly in advance. Meanwhile, administrators are likely to make decisions more quickly as to which properties they wish to use and trade from and which they do not. Fundamentally however, the decision provides a long overdue clear starting point for landlords and administrators to work together and establish how rent should be paid during the period of an administration.
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