Dates and payment of rent as an expense of the administration

News of permission to appeal given last week as to whether rent falling due pre-administration can rank as an expense

9 July 2013

The law on payment of rent as an expense of the administration may soon develop further, as permission to appeal was given last week at a hearing in the Game group administration.

In Re Games Station Ltd and others [2013] Ch D, the question once again was whether rent and service charge payable in advance that fell due before the administration were an expense of the administration.

Landlords had welcomed the decision in the Goldacre case in 2009, which established that administrators were obliged to pay rent as an expense of the administration if all or part of the premises were being used for the benefit of creditors. However, this only applies to rent that falls due during the course of the administration. Consequently, if an administration appointment takes effect shortly after a quarter day, and rent is payable on the usual quarterly in advance basis,  there will effectively be almost a quarter of rent free occupation. So far, all attempts to challenge this, notably in the Luminar case last year, have failed, and there has been a spate of judiciously timed administration appointments.

In the Game administration, administrators were appointed on the day after the March 2012 quarter day, with the result that substantial rent payments were avoided. At last week’s hearing, following Goldacre and Luminar, the court held that pre-administration rent could not rank as an expense, but gave permission for an appeal to the Court of Appeal, commenting that this question was one of concern to landlords and administrators generally.

The next step in this case will be awaited with interest by the property industry and insolvency practitioners alike.