Earlier this week, the English Court of Appeal overturned the recent decisions in Goldacre (Goldacre (Offices) Ltd v Nortel Networks UK Ltd  EWCH 3389 (Ch);2011 Ch 455) and Luminar (Leisure (Norwich) II Ltd v Luminar Lava Ignite  EWCH 951 (Ch)) regarding the treatment of rent in an administration. The case, Pillar Denton Ltd (and others) v Jervis (and others) (Game Station)  EWCA 180, now establishes that administrators must pay rent as an expense of the administration for the entire period they make use of the property, irrespective of when the rent fell due. This will be determined as a question of fact. This is a change to the earlier decisions of Goldacre and Luminar, which held that rent did not have to be paid by the administrators as an expense of the administration if that rent fell due before the administration, even though the administrators continued to use the properties.
The Pillar Denton case was brought by an aggrieved group of landlords following an administration which occurred one day after a quarter rental date. The sale of the business and assets to a third party that day resulted in a situation where the third party was not liable for the rent for the whole quarter (payable in advance) of almost £3m in total. The Court of Appeal decision clarifies the current position and provides an equitable approach so that in effect, if the property is used for the benefit of the administration then rent is payable for that period of use of the property. In other words, the question of payment is no longer determined by the due date of payment of the rent under the lease or the date of the administration.
Although this case concerned an administration, it is clear from the judgment that the same principles will also apply to liquidations. It is therefore of particular importance to administrators, liquidators and landlords of distressed businesses, in the latter case as regards their potential claims in the event of administration or liquidation but it is also relevant to advisors of potential purchasers of distressed businesses or their assets as it may impact pricing of those deals.