The UK High Court today took a crucial step towards resolving the difficult issue of when administrators must pay rent.
The court had to consider whether the administrators of Game Group, which owned over 600 stores with a £12 million quarterly rent roll before it became insolvent in March 2012, had to pay rent as an "expense of the administration" in priority to other unsecured debts. The case is the latest in a string of decisions following the landmark Goldacre ruling from 2010, including last year's Luminar Leisure case. In Luminar, the court confirmed that advance quarterly rent falling due prior to the appointment of administrators is not payable as an expense, even if the company continues to trade from the property during the remainder of the quarter.
As a result, Game, which appointed administrators shortly after the quarter day, is understood to have avoided paying several millions of pounds in rent before selling the business to a new owner.
Goldacre was originally viewed as a landlord friendly decision as the administrators were required to pay quarterly rents falling due after their appointment in full where they were using the property on the quarter day. It has since become something of a poisoned chalice for landlords and the seemingly deliberate timing of appointments around rent days prompted a consortium of Game's landlords to challenge the current law. If overturned, administrators could revert to paying a daily rent for the period used.
Before today's hearing, the landlords had agreed with the administrators and the buyers of Game to ask the court to "fast track" the case to the Court of Appeal without airing full arguments. The result was that the court followed Goldacre and Luminar but gave the parties permission to appeal its decision saying that the appeal had a reasonable prospect of success, a fact which was not disputed by the administrators or the buyers.
The parties gave some indication of the positions they will adopt before the Court of Appeal, making it clear that the real argument is between the landlords and the buyers. The administrators, who are indemnified by the buyers for the rent, are likely to take a largely neutral stance.
It is eminently sensible that an issue of such importance should be put before the Court of Appeal and the industry awaits the outcome with great interest. Although this is unlikely to be earlier than 2014, with the slew of retail administrations reported around the June 2013 quarter day, there is every reason to expect that the issue will remain a live one.