Rent Arrears - Game to Landlords

Game to Landlords

In Pillar Denton Ltd & Ors v Jervis & Ors [2014] EWCA Civ 180, also known as Game Station Ltd, the Court of Appeal has recently clarified when rent arrears should be an expense of the administration.

On 24 February 2014, the Court of Appeal decided a corporate tenant must make rental payments for the duration of any period he retains possession of the property for the benefit of the winding up or administration of the company.

Game Station Ltd entered into administration the day after their next rent instalment was due. The rent due amounted to approximately £10 million. Whilst some stores were closed immediately, trading continued in others, which were included in the sale of the business and assets of the group. Approximately £3 million of rent remained outstanding in respect of those stores.

The main question for the appeal court to decide was whether part of a rent instalment, paid in advance, could be treated as an expense in the context of insolvency.

Prioritising expenses

The Court decided that it could. It means a landlord’s unpaid rent can be claimed in priority to other expenses and the claims of other creditors. An administrator would therefore have to pay rent as an administration expense at a ‘daily rate’ for the duration that trading continued at the premises.

The decision has overruled two previous cases that were relied upon by administrators. Previously, companies often entered administration on the day after rent was owed for the next quarter. This meant the company avoided having to pay the rent even if they remained in possession of the property for the whole of the quarter. If the company then agreed a swift sale of the business then a new company could effectively trade rent free for the first three months.

What does the decision mean for landlords?

• The rent accruing during the period an administrator occupies the property will rank as an expense of the administration. The unpaid rent will be prioritised over other expenses of the administration.
• The amount of rent due will only equate to the amount of days the administrator might occupy the property. It will not therefore automatically be a full quarter’s rent.
• It will be irrelevant whether the administrator was appointed before or after the rent due date.

If you have an issue with Landlords or Tenants, or with property solicitor negligence, then we have a team of specialist Landlord & Tenant solicitors and other specialists to help you recoup any financial losses.