The Court of Appeal has handed down judgment in the highly anticipated Game case and has overruled the controversial decisions of the High Court in  Goldacre1 and Luminar2.

The decision has confirmed that where an administra- tor makes use of leasehold property for the  purposes of an administration, the reserved rent is payable as an administration expense for the  period during which the property is used, and will be treated as accruing from day to day for that  purpose. This is true whether the rent is payable in arrears or in advance and the date upon which  the rent becomes due and payable is irrelevant.

The Issue

The issue on the appeal was the treatment of rent payable under a lease held by a corporate tenant  that has entered administration. The appeal court was asked to determine when such rent is no more  than a provable debt; and when it ranks as an expense of the administration.


Whether an expense incurred by a company in admin- istration is payable in priority to other  creditors depends on whether it falls within the categories set out in the Insolvency Rules 19863.  The decisions in Goldacre and Luminar decided that:

  • if rent is payable in advance and falls due before the date of administration, then it is not  payable as an expense of the administration, even if the property is used for the benefit of the  administration during that rent period; and
  • if the property is used for the benefit of the administration, rent falling due during the administration is payable as an expense of the  administration whether or not the whole or part of the premises is used for whole or part of the rent period.

As rent was payable in advance, rather than in arrears, it was not possible for the rent to be apportioned under the Apportionment Act 1870. Consequently,  if a quarter’s rent became due before the appointment of administrators, no part of that rent was  payable as an expense of the administration.

Prior to these two decisions, it was generally accepted that the payment of rent on properties used  during an administration was not an absolute requirement and that a balance would need to be  achieved between the interests of the landlord and the interests of the creditors.4

The question in the current case arose in the context of the administration of the Game group of  companies. One of the companies in the group was the tenant of many hundreds of leasehold retail  properties from which the group traded. In relation to most of those properties rent was payable  quarterly in advance on the usual quarter days. On 25 March 2012 approximately £10 million in rent  became due under the various leases. It was not paid and the group entered administration on the  following day. Some stores were closed down immediately; but trading continued in other stores  which were included in a sale of the business and assets of the group to Game Retail Ltd (“GRL”), a  new company which was not part of the Game group and which was one of the defendants in the action. Approximately £3 million of  the March rent remained outstanding in respect of those stores. In reliance on the decisions in  Goldacre and Luminar, the administrators refused to pay the rent which had fallen due before their  appointment.

A consortium of landlords sought to challenge this by asking the Court of Appeal to overturn the  decisions of Goldacre and Luminar.

The Decision

In overturning Goldacre and Luminar, the Court of Appeal has decided that rent for what Lord  Justice Lewison called the “period of beneficial retention” should be payable as an administration  expense and apportioned on a “pay-as-you-go” basis, with payments falling due during that period  being subject to a “wait-and-see” approach. The Court held that the “salvage principle”, developed in equity during  the nineteenth century mainly in relation to distress cases (Lundy Granite5 in particular), which  provided that a landlord should receive the full value of the property where the company in  administration uses it for its own purposes, applied equally to non-distress cases.

Lord Justice Lewison noted that rent payments differ from other debts in an administration, as a  landlord has the right to prove for rent that falls due both before and after the date of  administration by virtue of r. 2.87 of the Insolvency Rules 1986. The question as to whether or not  that debt should be payable as if it were an expense of the administration under the salvage  principle depends on whether the tenant company is using the property for the benefit of the  administration with no corresponding benefit to the landlord.

The Court held that the reasoning in Goldacre was wrong on the basis that just because rent is not  appor- tionable under the Apportionment Act 1870 does not mean that the salvage principle is  inapplicable, and that Luminar was incorrectly decided because the salvage principle is not mutually exclusive from the right to prove for a debt in an administration. The  Court of Appeal confirmed that the salvage principle can take effect at any time and it is a  question of fact what period the principle should cover, not to be determined merely by reference to the date on which payment falls due.


The Court of Appeal's decision was widely predicted as it removes what many felt was unsatisfactory position in the state of the law following Goldacre and Luminar. The ruling means that rent will now be charged on 'pay-as-you-go' principle, which pending  any appeal, will see the end of the recent practice of administration appointments being timed to benefit from a rent free period. The decision appears to  be an attempt to put landlords on an equal footing with suppliers of other goods and services used  by a company while it trades in administration. The judgment clarifies the position and landlords will now know they will be paid the full rent for the property  for the period it is used for the benefit of the insolvency.

The Court of Appeal refused permission for GRL to appeal, but it is understood that GRL is considering the possibility of an appeal to the Supreme  Court directly and it will be interesting to see if the Supreme Court will be prepared to hear any  further argument on the point.