A group of the country’s biggest landlords have won a game changing case which will allow them to collect rent from companies in administration.
Under previous law, rent due whilst a tenant is in administration is payable if the business continues to trade from the premises.
However, a legal loophole intended to help struggling businesses meant that if a business filed a notice of intention to appoint administrators immediately after their quarterly rental date, and completed that appointment within ten days, the business could continue trading rent free.
This loophole has now been closed off, thanks to an action by British Land, Intu, Hammerson and Land Securities.
Between them, the quartet chalked up £3million of unpaid rent when retailer Game went into administration.
Their case against Game, which ran for two years, concluded this week, with judges in the Court of Appeal ruling that the law was unfairly stacked in tenants’ favour.
According to Alan Klein, the Birmingham-based head of CBRE’s regional lease consultancy team, the result is that, from now on, rent will be payable on a pay-as-you-go basis.
He said: “Where a tenant continues trading it is only right that the landlord can continue to charge rent. In these circumstances the landlord can not get the unit back and re-let it, so is potentially in a worse position than if the tenant had vacated altogether.
“In the case of a multiple store retailer, rental exemptions on this scale have a massive impact on landlords letting across large portfolios. It’s not just a single shop – it could be hundreds. And the loss of income doesn’t stop at the rent, there’s also the service charge.”
Mr Klein welcomed the ruling since it completely removes the issue of the rent due date, simplifying the law for both tenants and landlords.
However, he cautioned that Game is considering an appeal to the Supreme Court.