FOLLOWING the collapse of household names such as Comet, Jessops and Blockbuster, commercial landlords will be hoping for reassurance in relation to rental income from an upcoming Court of Appeal case concerning the administration of Game.
The Court is set to determine whether Game’s administrators, PwC, should have paid rent as an expense of Game’s administration, or whether rent should have formed part of Game’s unsecured debt. Where rent is payable as an administration expense, it takes priority over payments to all other creditors, excluding those with fixed charges.
FOLLOWING the collapse of household names such as Comet, Jessops and Blockbuster, commercial landlords will be hoping for reassurance in relation to rental income from an upcoming Court of Appeal case concerning the administration of Game.
The Court is set to determine whether Game’s administrators, PwC, should have paid rent as an expense of Game’s administration, or whether rent should have formed part of Game’s unsecured debt. Where rent is payable as an administration expense, it takes priority over payments to all other creditors, excluding those with fixed charges. Conversely, where rent forms part of the unsecured debt, it is only recoverable to the extent that there is sufficient money leftover to pay unsecured creditors at the end of the administration.
Following the 2009 Supreme Court case of Goldacre, rent has been payable as an expense of the administration if it falls due after the tenant has entered administration. Unpaid rent that fell due prior to the administration forms part of the insolvent tenant’s unsecured debt. Rent cannot be apportioned on a daily basis for the period of the administrator’s occupation – the administrator has to pay the whole of the amount that falls due.
This gives tenants the deliberate tactic of delaying administration until immediately after the rent due date. Rent then forms part of the tenant’s unsecured debt and the administrator is able to occupy the property rent-free until the next rent payment is due.
This has met with criticism from the landlord community and the British Property Federation. In anticipation, landlords have become, and arguably should be, far more proactive in taking action against tenants who fail to meet rent payments.
While it is expected that the Court of Appeal will follow Goldacre, landlords should be aware of the possibility that the Court might reach a decision which increase the chances of a landlord recovering rent due from insolvent tenants. That said, it could mean a return to the ‘pay as you trade’ system, or a provable debt in the administration, giving no security to landlords.
An update will follow when the decision is published.
To discuss this or any other disputed property matter, contact Jane Bloomer, a Director in the Commercial and Property Litigation team at Howes Percival LLP on 01604 230400.
