In its decision on the Game Station1 appeal, the Court of Appeal has overturned the cases of Goldacre2  and  Luminar3 holding that office holders of insolvent companies must pay rent of property occupied for the  benefit of creditors on a “pay as you go” basis irrespective of when rent falls due under the lease. 

The facts

Game Station entered administration on 26 March 2012. It had a large portfolio of leased premises. Rent on those premises was payable in  advance on the usual quarter days and approximately £10m in rent had fallen due on the March 2012  quarter day (the day before the administrators were appointed) (the March Rent). £3m of the March  Rent remained unpaid when the Court of Appeal considered the case.

In reliance upon Goldacre and Luminar, the administrators treated the entirety of the March Rent as  an unsecured debt as it had fallen due prior to their appointment. This was despite their  subsequent, and continued, use of the leased premises for the benefit of the administration.

The judge at first instance agreed with the administrators’ application of Goldacre and Luminar,  each of which had determined  that rent payable in advance could not be apportioned; ie any  liability could only be for the full rental period. Therefore, a full quarter’s rent would either  be an unsecured claim if it fell due prior to appointment (Luminar) or it would be an expense of  the administration if it fell due while the administrator  was using the lease whether or not the property was vacated during that quarter period (Goldacre). Rent could not accrue from  day to day as an expense of the administration.

The Court of Appeal decision

However, Lewison LJ noted that Goldacre and Luminar had “left the law  in a very unsatisfactory state” and created an inequitable position whereby the liability of office  holders to pay rent varied given the timing of their appointment as against the falling due of  rent. In short it meant that there was no reliable correlation between the amount of rent payable  and the true benefit gained by the estate in using such leased property.

Game Station has established that when an office holder is in occupation of leased property for the benefit of creditors:

  • he must make payment at the rate of the rent for the period of occupation;
  • rent will accrue from day to day during occupation; and
  • such rent will be payable as an expense of the administration/liquidation (the Court having held  that its decision applied to both processes).

Comment

Game Station seeks to fairly address the opposing interests of landlords and office holders. The  improved position of landlords is clear – no longer will the recoverability of rent depend upon the  timing of an office holder’s appointment. This will mean office holders are no longer able to enjoy the effectively rent free periods that could arise under the old law,  which may cause a reduction in the sums available for distribution to creditors. However, it is not  all bad for office holders as in situations where they wish to vacate property rent will only be an  administration expense for the period of occupation.

It is possible that Game Station may be appealed again, to the Supreme Court, so this issue may be revisited again.