A legal dispute over whether unpaid rent from stores occupied by the collapsed Game group can be recovered as an administration expense is heading for the Court of Appeal.
In the Game administration, PWC were appointed as administrators immediately after the March 2012 quarter day, with the result that substantial rent payments were avoided. This has been challenged by a consortium of landlords in a bid to recoup unpaid rent at the date of insolvency.
At a recent High Court hearing, following the earlier decisions in Goldacre and Luminar, the court held that pre-administration rent could not rank as an expense of the administration. Consequently one quarter’s rent is, in effect, lost into the pot of creditors who are unlikely to be fully compensated, despite the administrators running the business on and continuing to use those premises. The landlords lose out to the benefit of the general creditors.
The Court, however, granted permission to appeal as the matter was of concern to administrators and landlords generally and the amounts involved were significant. The Court of Appeal will consequently now be asked to overturn the well-established principle that rent failing due pre-administration is not payable as an administration expense even if the property is used for the benefit of the administration for the majority of the quarter.
If Goldacre and Luminar are overturned by the Court of Appeal, it seems likely that landlords would require payment on a daily basis for all rent and service charges during which a property is retained for the benefit of the administration. The next step in this case will be awaited with interest by the property industry and insolvency practitioners alike.
James Sutherland and David Benjamin are real estate litigation lawyers advising landlords and tenants on obligations and disputes arising under lease arrangements.