A blow for Landlords? Pre-administration rent not a cost of administration

April 20, 2012

Whilst the well publicised Goldacre (Offices) Limited v Nortel Networks UK Limited (2010) confirmed that a company in administration must pay all rents that fall due on any leasehold premises it uses for the benefit of its creditors as an expense of administration, it left open the question as to whether payments falling due prior to the commencement of administration would also be considered in this way.

A recent decision in the High Court in Leisure (Norwich) II Limited v Luminar Lava Ignite Limited (in administration) has provided clarification on this.

In this case, following the appointment of administrators in October 2011, various nightclub premises continued to be used until the administrators successfully agreed the sale of some of the premises. Rent was payable quarterly in advance and the September quarter rent was in arrears. The landlord claimed that this rent should form part of the administrators’ expenses.

However, the High Court found in favour of administrators and held that, despite the continued use of the premises, any rental payment due prior to an appointment of an administrator will not be an expense of administration. As such, these amounts can not take priority over any other unsecured debts.

This has been seen as a blow to landlords with administrators likely to take full advantage of the prospect of use of premises at no rent by waiting to put companies in to administration the day after rent payment dates.

With the two judgments meaning landlords and administrators are now one apiece, it will take a further case, where the rents at stake are high enough for either party to be able to justify the costs of arguing a return to the “pay-as-you-go” approach, as previously used before Goldacre, through the Courts.

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