Tenants Must Pay Rent During Administration Period

Tenants Must Pay Rent During Administration Period

Landlords in the United Kingdom have widely welcomed a decision that a large retailer must pay to its landlord £3 million in unpaid rent that accrued during the retailer’s administration period.

The landmark ruling comes from the Court of Appeal in London and means landlords have more protection in the event a tenant enters into administration.  It also provides greater clarity surrounding the issue of rent due in the event of an administration.  The experienced insolvency, and landlord and tenant lawyers at Bahamas firm Parris Whittaker are highly experienced in advising landlords and tenants who are insolvent or in administration. 

What is the background to this case?

The Game group is a leading UK video games retailer who has attempted to claw its way out of insolvency.  The day before it was placed into administration, it owed £10 million under various leases including £3 million of unpaid March rent remaining at the end of the administration.  It was assumed no rent would fall during the three months following the start of the administration as rent only fell due on the Quarter Day.

However, the ruling effectively closes a legal loophole that allowed tenant companies to avoid paying rent for three months if administrators were appointed shortly after the quarterly rent day.

What are the implications for tenants?

The ruling effectively strikes a blow to a tenant’s strategic decision to enter into administration on the day immediately following a quarter date with the intention of avoiding their rental and other liabilities - even if they continue to retain possession of the property for the whole of that quarter. Whilst the judgment did not deal with other financial or property related issues, such as service charges and insurance, we would assume they will be treated in the same way and will also fall due with the rent.  

What are the implications for landlords?

If a tenant falls into administration, the quarterly rent holiday which arose out of the earlier Goldacre and Luminar rulings has now been swept away – to the relief of landlords who were previously left out of pocket.  The issue now is how they, along with administrators, decide how they will deal with rent payments and should reach a mutually acceptable approach to this with the tenant.  We now expect fewer disputes between landlords and insolvency practitioners

How can we help?

Whether you are a landlord with an insolvent tenant, or you are a tenant who has gone into administration, we can advise you how the law applies to a tenant’s rental obligations during an administration period. To enable us to act promptly on your behalf, contact us urgently so that we can advise you on your specific circumstances.  Contact the experienced insolvency, and landlord and tenant lawyers at ParrisWhittaker for immediate expert advice.