Can the landlord of a tenant that has gone into administration or liquidation claim preferential treatment, ahead of ordinary unsecured creditors, for the payment of rent?

In Goldacre (Offices) Ltd v Nortel Networks UK Ltd (in administration) it was held that, in the case of premises kept running by the administrators, all rent falling due after the date of the administration was payable ahead of ordinary unsecured creditors as “an expense of the administration”.

In the recent case of Schroder Exempt Property Unit Trust v Birmingham City Council, the High Court has confirmed that it is the landlord who is liable to pay business rates for an empty property following disclaimer of the lease by the tenant’s liquidator.

Under the Local Government Finance Act 1988, the person “entitled to possession of the property” is liable for rates.

The court held that, following disclaimer, the landlord had an immediate right to possession even though it had not actually taken possession of the property.

Phones 4u went into administration on 15 September 2014 following a decision by EE not to renew its contract. At the time of writing, all 560 stores and 160 concessions have been closed, pending a decision by the firm’s administrator whether to continue trading or break the company up in deals with, amongst others, EE and Vodafone.

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.

Overturning two significant recent decisions, the Court of Appeal has held that whenever a rent payment day falls, from the moment a company in administration beneficially retains property, it will ordinarily be liable to pay rent as an expense for the period of that beneficial retention.

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.