It’s a fair(er) GAME for landlords
Under Insolvency law, rent is paid as an expense of an administration when an administrator of a business continues to occupy leasehold premises. Previous case law determined that in these circumstances rent should be paid on the same basis as it was prior to the administration. A legal loop-hole meant that where rent was paid on a quarterly basis and the appointment of the administrator was timed to occur the day after the quarter day, then no rent would need to be paid until the following quarter. Effectively allowing the administrator to benefit from a three month rent-free occupation.
The recent ruling following the collapse of the retailer ‘Game’ in 2012 overturns the previous legal position, allowing for rent to be paid as a trading expense for so long as the business continues to occupy the premises and, importantly, accruing on a daily basis, regardless of the provisions of the former lease.
The previous system was seen by landlords as being entirely unfair. The administration moratorium prevented them from taking action to recover the premises from their insolvent tenant, whilst the troubled business was entitled to continue to trade on a three month rent-free basis.
The new ruling at least now entitles the landlord to be paid rent for the full period the administrator continues to occupy the premises, even if previous arrears have to written off as unsecured debt.
Fenn Wright Partner Alistair Mitchell remarked: “The extent by which this decision will now enable landlords to recoup unpaid rents from previous administrations remains to be seen and the basis upon which ‘daily’ rents are to be paid will also require further clarification. However, this latest development is a positive and logical step to ensure landlords are not unduly penalised when a business tenant unfortunately gets into financial difficulties.
For specific advice about matters relating to your Commercial property acquisition, lease or disposal please get in touch with your local Fenn Wright Commercial team.