Landlords are often placed at a disadvantage when an insolvent tenant company enters into administration. The landlord will not be a secured or preferred creditor where its tenant does not pay the rent, and the landlord cannot forfeit the lease for non-payment of rent without permission of the court.
However, in some circumstances the ongoing rent might be an expense of the administration where the administrators retain the use and the benefit of the premises to further the interests of the creditors of the company as a whole. This means that the landlord will be paid ahead of other creditors if there is enough money available.
The application of this principle was refined in a recent case. The court held that rent which falls due under the lease before the company enters administration can never rank as an expense of the administration. This includes any rent covering a period in which the administrators used the premises, but which fell due before they took occupation such as a quarter’s rent payable in advance.
In these circumstances, a company may avoid going into administration until shortly after a quarter day. The result is that the administrator gets free use of the premises for approximately three months, and the landlord is left to claim for this rent as an unsecured creditor.
Leisure Norwich (II) Ltd and others v Luminar Lava Ignite Ltd and others (2012)