Christmas came early for landlords last year when the High Court handed down its decision in this case. The court had to consider the circumstances in which a tenant's administrators are obliged to pay rent as an expense of the administration, thereby giving the landlord priority over other unsecured creditors.
It affirmed that the so-called ”salvage principle”, under which liquidators are liable to pay rent as a liquidation expense where they make use of or retain the premises for the benefit of the liquidation, also applies to administrations. Perhaps more importantly, however, the court declined to follow the view expressed by the Court of Appeal in another recent case that administrators have a discretion as to whether or not to treat rent as an expense of the administration, which is to be exercised by balancing the interests of the creditors as a whole against those of the landlord. If the salvage principle applies, there is an obligation to treat the rent as an expense of the administration.
This does not necessarily mean that the landlord will be entitled to immediate payment. If there is doubt over whether the realisable assets of the company will be sufficient to satisfy all the claims which have priority, the landlord may have to wait for his money. However, where the assets of the company are sufficient, there will usually be no justification for not paying the rent as it falls due.
Goldacre (Offices) Limited v Nortel Networks UK Limited (in administration) (2009) EWHC 3389 (Ch)