GAME decision reassures landlords

Commercial rent is payable when a company falls into administration, the Court of Appeal has held.

Ruling in Pillar Denton v Jervis [2014] EWCA Civ 180, Lord Justice Lewison described the existing law as having been left in a “very unsatisfactory state” by previous High Court rulings. He said rent should be treated as accruing from day to day, and was payable as an expense of the winding up or administration.

The case, brought by a consortium of landlords, concerned a dispute over £3m in back rent due prior to the collapse of digital game retailer GAME.

Previously, if a company entered administration the day after the quarterly rent payment was due, the rent for that quarter could legally go unpaid, with the landlords being only an unsecured creditor and paid a percentage of assets realised during the administration. This effectively gave the administrators a three-month grace period, in which they could trade while seeking a buyer.

Paul Booth, head of commercial litigation at Baxter Caulfield, says: “The appeal court ruling means rent will now be classed as an expense of an administration, which is paid ahead of creditors, and administrators must pay rent for any time that they occupy a property.”

He says the ruling will stop “tactical administrations”. 

Ian Fletcher, director of policy at the British Property Federation, says: “This is the fairest outcome for all, as it means that landlords get paid and that insolvency practitioners can trade over the best timeframe for the rescue of the business.”