Rent payable during an administration accrues on a daily basis

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Posted in:Banking and Finance, Corporate and Commercial, Litigation|March 4, 2014 | Join the mailing list

 

Summary and implications

The Court of Appeal has ruled that rent is an administration expense, payable on a daily basis for the period during which premises are retained for the benefit of the administration (Pillar Denton Ltd v Jevis & Ors, 24 February 2014).

Under two previous decisions it had been the case that tenant companies could avoid a whole quarter’s rent being treated as an expense of the administration by being placed into administration just after a quarter day – see
Goldacre and Luminar.

These cases held that, as rent payable in advance is not subject to apportionment, any rent falling due before the administration could not be recovered as an administration expense. As a result, it had become common for a company to go into administration
on the day after a quarter day, to avoid liability to pay rent for that quarter. That tactical advantage has now been lost.

What does this mean for you?

When you are faced with a tenant that has gone into administration, it must pay for occupation of premises on a day to day basis – even where rent is payable in advance. The tactic of not paying a quarter’s rent and then placing the company into administration
the next day (or shortly after that) no longer works to absolve the administrators from liability for that quarter’s rent.

This can be a significant amount – in the Pillar Denton case, approximately £10m of rent fell due from one of the companies in the Game Group on the March 2012 quarter day. The company was put into administration on 26 March 2012, no rent having been paid
on the previous day.

The Court of Appeal decided: 


  • administrators must pay rent for any period during which they use property for the benefit of the administration (or winding up);
  • the rent is payable as an expense of the administration (or winding up)
  • the rent will accrue from day to day; and
  • if the administrator stops using the premises before the next quarter day, the rent for the period of use will be apportioned accordingly.



For more information about any of the above or for practical commercial advice on this or any other aspect of property law, please contact
Ian Barker by telephone
; 0161 833 9211 or
email.

The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any of its partners or employees. Professional legal advice
should be obtained before taking, or refraining from taking, any action as a result of this article.

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