The Court of Appeal has handed down an important judgment for landlords and insolvency practitioners, in the case of Jervis v Pillar Denton; re Games Station (“Game”).
Lord Justice Lewison has confirmed that, where a company becomes insolvent but the administrator or liquidator (“the Insolvency Practitioner”) retains possession of leasehold property for the purposes of the administration or liquidation, rent should be paid for every day that the Insolvency Practitioner is in occupation, as an expense of the administration or liquidation.
This Judgment overrules the law as previously laid down by the High Court in the Goldacre and Luminar cases, which Lord Justice Lewison described as having “left the law in a very unsatisfactory state… In some cases this will result in the [Insolvency Practitioner] paying more than the true benefit (as in Goldacre). In other cases it will result in his paying less (as in Luminar).”
In both Goldacre and Luminar the Court held that the rent payable by an Insolvency Practitioner depended upon what rent fell due and when. Rent would be payable as an expense if it fell due for payment after the Insolvency Practitioner went into office. This meant that, where rent was payable quarterly in advance under a lease, an Insolvency Practitioner could go into office the day after a quarter day and pay no rent until the next quarter day. If the Insolvency Practitioner was able to vacate the premises prior to the next quarter date then the landlord would not be entitled to claim any rent as an expense. Conversely, once rent fell due, it would be payable in full regardless of whether the Insolvency Practitioner vacated the premises during the rent period.
In Game, Lord Justice Lewison determined that the period for which rent should be paid as an expense of the administration (or liquidation) “is a question of fact and is not determined merely by reference to which rent days occur before, during or after that period.” He also confirmed that this is the case whether the rent is payable in arrears or in advance.
This decision effectively reinstates the historic position on rent in administration, as it was prior to Goldacre and Luminar, which many have always considered to be fair: namely that Insolvency Practitioner should pay rent, as an expense, for any days that they use or occupy leasehold premises.
The result is that, for so long as premises are being used to benefit creditors as a whole, the landlord is compensated. After that, the rent claim becomes an unsecured claim in the insolvency process, and the landlord is free to seek the consent of the Insolvency Practitioner (or to seek an Order of the Court) to forfeit the lease.
Most would agree that the Court of Appeal have achieved a victory for common sense.