The Court of Appeal today overturned existing rules on when administrators have to pay rents falling due before their appointment. The Court ruled that rent payable in advance can be treated as an administration expense such that administrators cannot avoid paying rent payable in advance that falls due before the date on which the administrator is appointed.
Game's administrators sold the assets of the group, including a number of the stores which continued to trade. The question was whether they had to pay £3 million of unpaid rent that had fallen due for those stores. The Court of Appeal decided unanimously that they did. Prior to the ruling, the appointment of the Game administrators on 26 March 2012 (the day after the rent payment day) would have allowed the administrators a rent free period until the next quarter day. The administrators relied upon Goldacre and Luminar and did not pay any rent. The Landlord sued the administrators for the unpaid rent.
The effect of Goldacre and Luminar was unsatisfactory for landlords, who could face a substantial period without rent being paid. There was also a risk for administrators; any occupation on a subsequent rent payment date would mean having to pay the rent for the whole of that period. No rent would be returned to the administrators if the premises were not occupied for all of that period.
The Game ruling has now overturned this position. The court held that the rent should be treated as if it were a debt incurred by the administrator and would be treated as an expense of the administration. It would accrue on a daily basis, irrespective of the date on which rent fell to be paid. The court disregarded the common law and statutory rules that apportionment does not apply to rents payable in advance and relied upon equitable principles.
The result will be seen as a victory for landlords. The Court held that a strategically timed appointment of administrators will not be prejudicial. It is hoped that a return to the “pay as you go” regime, which existed prior to Goldacre and Luminar will herald a transformation in the relationship between the property industry and insolvency practitioners. It remains to be seen whether there will be an appeal to the Supreme Court, though this may seem inevitable given the amounts at stake and the possible ramifications of the ruling.