Landlords hit by High Court ruling on rent during administrations

12 June, 2012

The High Court has held against four landlords who were seeking a ruling that a nightclub operator that had gone into administration must pay, as an expense of the administration, a quarter’s rent that had fallen due immediately before the administrators were appointed.

The verdict in the Luminar case clarifies the principle established by the 2009 Goldacre case . In Goldacre the court held that, where administrators continue to make use of the premises on a rent payment day, the whole of the sum that falls due must be paid as an expense of the administration. This rule applies even if the administrators cease trading and vacate the premises on the next day. This appeared to be positive news for landlords, but the Luminar case confirms the other side of that coin. Therefore, where rent is payable in advance, it is only rent that falls due after the administrators have been appointed and whilst the tenant is continuing to use the premises that needs to be paid as an expense of the administration. As a result, if an administration starts shortly after a rent day, the administrators will be able to trade from the premises without incurring liability for rent until the next rent day.

Landlords will be concerned that, in some scenarios, these cases effectively give administrators the opportunity to use the premises for most of a quarter for free, leaving landlords to pursue a claim for the unpaid rent in the liquidation. Whilst there are steps that a landlord can potentially take to put pressure on the administrators to pay for their occupation of the premises, it is important for landlords to remain vigilant with regards to their tenants’ finances. If a tenant company enters an insolvency regime, landlords and their advisors should look to get an early feel for how important the premises are to the administrators and therefore of the relative strength of the parties’ negotiating positions.

Link to Goldacre (Goldacre (offices) Limited v Nortel networks UK Limited (in administration)