In a landmark decision Pillar Denton Ltd and Others v Jervis and Others  EWCA Civ 180, a group of the UK's largest landlords have successfully overturned previous High Court cases that had allowed insolvent tenants to continue trading from their premises without paying rent. The landlords in this case, which involved the retailer GAME, have been allowed to recover £3,000,000 in outstanding rents from the period of the tenant's administration. This decision will have substantial implications for landlords, tenants, insolvency practitioners and purchasers of insolvent businesses. Rent is now to be calculated daily based on the actual use of the premises, rather than by reference to rent periods or due dates. Crucially, rent for these periods will be payable as an expense of the insolvency, and not just as an unsecured debt.
This decision should see landlords able to recover rent for each day that the property is occupied for the purpose of the insolvency. Prior to Pillar Denton, if the rent date pre-dated the commencement of the insolvency, even by one day, the tenant could continue to trade without paying rent until the next rent date. The decision should close this loophole, which was in danger of affecting business and commercial decisions, and which had potentially unfair consequences for some parties. The biggest implications are likely to be for the retail sector, where the benefits of continuing to trade are the highest. It may well mean that administrators and liquidators take a more cautious approach and close more stores at an earlier stage.
This important decision will arise in many insolvencies. This will not be the end of the matter, as the decision is limited to rent (it does not address items such as dilapidations payments and other obligations) and what is meant by the phrase "beneficial occupation" in determining whether a property is occupied for the purposes of an insolvency will be a question of fact in each case. If you have a tenant that has been, or is, in an insolvency process, or if you have acted as administrator or liquidator on the insolvency of a tenant, you may wish to seek advice.