Landlords have lost round two in the ongoing battle as to whether rent should be paid as an expense of the administration. The decision of the Court last week in the X-Leisure / Luminar case was in favour of administrators.

Following the Goldacre case, if an administrator is using the property for the purposes of the administration on the quarter day then the full quarter’s rent is payable as an expense of the administration.  What was not clear, was whether if the administrator was appointed just after the quarter day rent was payable as an expense. 

The Court decided that rent arrears accruing prior to the administrators’ appointment could not be recovered by the landlord as ‘administration rents’.

Therefore, any rents that fall due before the administrators’ appointment will not be recoverable ahead of other debts as an expense of the administration, regardless of whether the administrators continue to trade from the premises following their appointment.  Such pre-administration rent arrears will still be provable (i.e. can still be claimed in the insolvency process) but with limited chances of recovery.  Landlords will therefore have to consider other options such as seeking possession to improve their position.

As the full judgment has not yet been released the detailed reasoning behind the decision is not known.  Watch this space for a more detailed update and any indications as to a likely appeal.