5 Mar 2014

On 24 February the Court of Appeal handed down its eagerly anticipated decision in the Game case (Pillar Denton Limited and others v Michael John Jervis, Stuart David Maddison and Game Retail Limited [2014] EWCA Civ 180) overturning existing rules on administration where a company continues to trade from a premises and concluding that administrators can no longer avoid paying rent payable in advance that falls due before their appointment.

As previously reported, the 2009 and 2012 cases of Goldacre and Luminar respectively had left landlords out of pocket and, in Lord Justice Lewison’s words, the law in “a very unsatisfactory state” after a standard practice evolved of administrators being appointed the day after a rent payment date. This effectively gave administrators a rent free period until the next rent payment date. Needless to say there was some risk to administrators if appointed mid-way or shortly before a rent payment period in that they were then liable for the whole period even if in practice occupation was not for the entire rental period.

The Game ruling has overturned this. In this case administrators were appointed on 26 March 2012, the day after the majority of rent payment dates in respect of the company’s various leases had fallen due. The administrators relied upon the Goldacre and Luminar rulings and refused to pay the rent. The administrators subsequently entered into a pre-pack sale of the company allowing the new company to take over the business and to occupy the various premises under licence so gaining the benefit of a bonus rent free period. The landlords sued the administrators and by the time the case reached the Court of Appeal some £3 million in rent remained outstanding.

The Court concluded that rent must be paid for the time an administrator uses a premises for the benefit of administration. The amount of rent payable is calculated on a day-to-day basis and ranks as an expense of administration. This restored the position to what it had been prior to the Goldacre and Luminar cases.

The Game decision provides a more balanced approach to payments of rent in administration. It will not only be welcomed by landlords who, of course, have had no control over tenant companies administration but will also have an impact on all other parties involved not least administrators and potential purchasers of distressed businesses. It is yet to be seen how the market will react to this judgment if only to see how rent will be paid, apportioned and recovered in practice.

Finally, the on-going saga may not yet be over. We await confirmation as to whether there will be an appeal to the Supreme Court.

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