On 24 February 2014 the Court of Appeal delivered its long awaited judgment in the GAME Group litigation (Pillar Denton Limited & Ors -v- Jervis & Ors).
This is an extremely important decision and will affect every trading administration where the company is a tenant.
The Court of Appeal held unanimously that rent falling due in an administration or a liquidation accrues from day to day for the period during which the premises are retained and used for the purposes of the administration or liquidation. The extent of usage by the company will be a matter of fact assessed on a case by case basis.
In Goldacre the Court had held that rent falling due during administration (for example on the usual quarter days) would be payable in full as an expense of the administration, notwithstanding that the administrators vacated the premises during the relevant period, or did not use the premises for the entire period. In Luminar the Court held that if the rent fell due before a company entered administration it was a provable debt only, and none of the rent was payable as an expense, even if the administrators used the premises for the purposes of the administration.
The Court overturned these decisions by considering and applying the salvage principle to rent falling due before, and during, the period of administration or liquidation, thereby permitting parts of liabilities to be treated as expenses of administration or liquidation.
This decision brings welcome clarification for office holders and landlords. The perceived practical effect of the decisions in Goldacre and Luminar was the administrations (and to a lesser extent, liquidations) were timed tactically to commence after the quarter days for rent, thus securing a rent free period for the company, to the detriment of its landlord.
Now office-holders must factor in premises costs, accruing on a daily basis, as expenses of the administration, and landlords can expect to be compensated for the period when the premises are retained for the purposes of the administration or liquidation, whenever the rent might have otherwise been payable pursuant to the lease terms. This returns stakeholders to the accepted practical position before Goldacre.