Restoration of pay-as-you-go rent arrangements when businesses go into administration has been hailed as “a return to commonsense”.
Alastair Frew, partner in the real estate department at Lodders Solicitors in Stratford-upon-Avon, said commercial landlords would be extremely relieved.
He was commenting on the outcome of the Jervis v Pillar Denton case where the Court of Appeal ruled that rent payable by a tenant entering administration is a priority expense of the administration while the leasehold premises are being used for the benefit of that administration, with the rent treated as accruing from day to day.
The action followed the administration of Game group which will see the electronics and gaming retailer pay out £3 million in rent.
The appeal, by a consortium of landlords including Land Securities, Hammerson and British Land, overturned the controversial Goldacre/Luminar decisions which decided somewhat arbitrarily that the rent should only be an expense of the administration if the quarter day fell after the start of the administration. The Game group was put into administration the day after the quarter day, giving the administrators three months’ rent free occupation.
Mr Frew said: “This change of regime is highly significant for all concerned – the retail sector, the corporate recovery profession and landlords.
“And it should benefit all concerned by introducing greater fairness and removing what was in effect something of an anomaly.
“Given the problems of the High Street and restrained consumer expenditure this introduces a greater degree of certainty. It will restore trust between all three main parties and hopefully help rather than hinder attempts to rescue struggling businesses and in the process save jobs.
“Indeed I would concur with those who say this is good for landlords, good for workers and good for creditors. This now clarifies who pays rent and service charges while the administrators are in control.”
Under insolvency law, administrators can legally trade business in administration from the rented premises for as long as three months, protected from landlord enforcement action. The Jervis case makes it clear that administrators, and likewise liquidators, are nonetheless required to pay rent while they are in occupation.
Lord Justice Lewinson said the law had been left in a “very unsatisfactory position” by the Goldacre/Luminar rulings, both of which he overturned.
Game group went into administration in March 2012, provoking almost two years of argument as to the rental position.