Following a case known as Goldacre, it was held that if an administrator is in occupation of a leasehold property, which is being retained for the purposes of the administration, and rent falls due (monthly or quarterly) during his / her occupation, then such rent is to be treated as an expense of the administration (and therefore paid in priority to unsecured creditors). This remains the case even if the administrator occupies only part of the property and whether or not he / she occupies the property for the whole quarter.
However, how would rent that fell due prior to the administrator’s appointment, and occupation of the property for the purposes of the administration, be treated? The recent decision in Leisure (Norwich) II Limited v Luminar Lava Ignite Limited (in administration) has given clear judicial authority on the matter.
Administrators from Ernst & Young were appointed to various companies within Luminar in October 2011. Luminar operated a number of nightclubs from leasehold properties. At the time of the administrators’ appointment, rents payable in advance and due in September, had already fallen into arrears. The administrators continued to operate the nightclubs with a view to maximising the eventual sale of the business.
X-Leisure was landlord of four of the clubs and sought to have the rent, which had already fallen due before the administrators’ occupation, treated as an administration expense and therefore paid in priority.
The Court held that where rent is payable in advance and falls due for payment prior to the commencement of an administration, then it will not rank as a administration expense, but will be treated like all other unsecured claims. This remains the position even if the administrator occupies the property for the purposes of the liquidation or administration.
This decision will render the timing of administration appointments of vital importance. It is highly likely that administrators will seek their appointment immediately after the quarterly / monthly rent has fallen due, thereby allowing them almost a full quarter or month without having to pay rent and to trade the business while seeking to find a purchaser. Is it just coincidence that The Game Group Plc was placed into administration only four days after the March quarter date?