Partner Article

Retail administration case: the game changer

Paul Earnshaw, commercial property partner at Short Richardson & Forth, looks at the Court of Appeal decision handed down in February 2014 relating to tenant’s administration and rent.

Since the credit crunch more and more tenants have gone into administration. Administration is supposed to protect a company and give it breathing space to sort out its finances.

However, this puts landlords in a difficult position where they cannot take action against the tenant for unpaid rent, or end the lease, without either permission of the court or the administrator.

After the High Court’s Goldacre decision in 2009 there was a loophole that if the administration came just after a rent day the tenant could occupy until the next rent day and the rent would be treated as unsecured debt, and probably not paid.

This left a lot of landlords out of pocket. Following the administration of Game Retail several heavyweight landlords, including the owners of Eldon Square Shopping Centre, tested the Goldacre decision in Court, with around £10 million of rent at stake.

The Court of Appeal decided that if a tenant in administration makes use of premises then the rent due is an expense of the administration and payable for all the days the property is used. This makes rent payable before most other creditors and means it is far more likely to be paid.

This is a very sensible decision which closes the loophole that existed before. Through the dark cloud of tenant’s administration this is a small silver lining for landlords.

This was posted in Bdaily's Members' News section by Short Richardson and Forth LLP .