It has been understood since the Hindcastle case in 1997 that a guarantor’s payment obligations under a lease survive disclaimer by an insolvent tenant’s liquidator.  What has been less clear is how that works, given that the tenant’s obligation to pay rent dies when the lease is disclaimed.

Schroder Exempt Property Unit Trust and another v. Birmingham City Council [2014] EWHC 2207

Summary

A landlord is liable for business rates where a tenant's lease is disclaimed, even if the landlord does not take possession of the property following a disclaimer.

Background

Most Landlords, and Insolvency Practitioners (“IP”s), will be well aware of the issues and liabilities that can arise where a tenant (whether it be a company or individual, residential or commercial) experiences financial difficulties. Competing interests can lead to difficulties for all parties and, potentially, legal disputes.

In a landmark decision Pillar Denton Ltd and Others v Jervis and Others [2014] EWCA Civ 180, a group of the UK's largest landlords have successfully overturned previous High Court cases that had allowed insolvent tenants to continue trading from their premises without paying rent. The landlords in this case, which involved the retailer GAME, have been allowed to recover £3,000,000 in outstanding rents from the period of the tenant's administration.

Prayers are answered in the Gamestation verdict, reports Richard Palmer, as the liability of administrators of insolvent companies to pay rent has been clarified.

But is it GAME over?

Pillar Denton Ltd and Others v Jervis and Others [2014] EWCA Civ 180

Summary – What happened?

A group of the UK's largest landlords have successfully overturned previous High Court decisions that had allowed insolvent tenants to continue trading from their premises without paying rent. The landlords in this case, which involved the retailer GAME, have been allowed to recover £3,000,000 in outstanding rents from the period of the tenant's administration.

24 February 2014
[2014] EWCA Civ 180
Court of Appeal (Patten, Lewison and Sharp LJJ)

The fact that rent payable in advance had fallen due prior to the tenant company entering administration did not prevent that that rent being payable an expense of the liquidation of the tenant company under the salvage/Lundy Granite principle.  The amount of rent so payable was a question of fact.

Restrictive covenant - if in doubt, lender should be notified; the costs risk of insolvency proceedings; interim payments; service of claim form; Wragge & Co's banking and finance experts bring you the latest on the cases and issues affecting the lending industry.

Restrictive covenant - if in doubt, lender should be notified

If a company goes into liquidation, the liquidator is able to disclaim the whole of an insolvent tenant’s liability under a lease. The disclaimer ends all of the tenant’s rights, interests and liabilities, effectively meaning that the tenant can get out of the lease early. This can have a significant impact on a landlord, whose expected income from the property suddenly comes to an end.

In its decision on the Game Station¹ appeal, the Court of Appeal has overturned the cases of Goldacre²  and  Luminar³ holding that office holders of insolvent companies must pay rent of property occupied for the  benefit of creditors on a “pay as you go” basis irrespective of when rent falls due under the lease. 

The facts