Commercial landlords will be familiar with the practice that has grown up since the 2010 case of Goldacre of putting companies into administration immediately following a quarter day. By adopting this tactic, administrators have been able to avoid paying rent as an administration expense until the next quarter day while continuing to use the premises for the benefit of the administration.
The decision in Goldacre, followed in the 2012 case of Luminar, has left landlords out of pocket, forcing them to prove as unsecured creditors while the insolvent company enjoys up to three months of rent free trading at their expense.
For landlords, if not for insolvency practitioners, this week's Court of Appeal judgment in Jervis v Pillar Denton; re Games Station will therefore come as welcome news, bringing some much needed clarity and what many will see as a 'common sense' solution.
Overruling Goldacre and Luminar, the Court of Appeal found in favour of the appellant landlords of the Games Station group which had, in order to take advantage of Goldacre, entered administration one day after the March quarter day, on 26 March 2012.
The Court held that when a company enters administration or liquidation it is immaterial whether this happens before or after a quarter day. If premises leased by the company are used for the purpose of the administration or liquidation, the passing rent is payable as an administration or liquidation expense for as long as the office holder makes use of the premises and is to be treated, for that purpose, as accruing from day to day. If an administrator, for example, trades from the company's leasehold premises for three weeks, the equivalent of 21 days rent will be payable to the landlord as an administration expense. However, after the administrator ceases to use the premises, no further rent will be payable as an expense even if a new quarter's rent happens to fall due during that three week period.
The Court of Appeal's decision could yet be appealed to the Supreme Court and landlords should therefore take note that this may not be the last word.