Fair Game

Court of Appeal addresses problems arising from Goldacre and Luminar

In the High Court cases of Goldacre (Offices) Limited v Nortel Networks UK Limited (2009) and Leisure (Norwich) II Limited v Luminar Lava Ignite Limited (2012) (commonly referred to as the Goldacre and Luminar cases), it was decided that:-

• if rent is payable in advance (as is the norm with commercial leases) and an administrator is appointed after a rent payment date, the rent is a provable debt but is not an expense of the administration. Consequently, the administrator does not have to pay the rent for that period, in effect providing the administrator with a rent free period, the Landlord's claim for rent for this period forming part of the pool of unsecured creditor claims
• where an administrator was in occupation of any part of any premises let by the company on a rent payment date, the whole of the rent for the whole of the premises for the full rent period is payable as an expense of the administration, even if the office holder only occupies for a short period after the rent date or they utilise only part of the premises.

On 24 February 2014, the Court of Appeal handed down its long awaited judgment in the case of Pillar Denton Limited v Jervis (2014), a dispute arising out of the administration of the Game Group of companies. In a unanimous judgment which overturned the Goldacre and Luminar principles set out above, the Court of Appeal held that

• where premises are occupied for the benefit of the administration, irrespective of when the administrator is appointed, rent is payable as an expense of the administration. Being an expense of the administration means that rent will be paid on a priority basis before the administrator's own fees and costs.
• "Rent will be treated as accruing from day to day...payable as expenses of the winding up or administration". Office holders will therefore be liable to pay for the day to day use of the property that they enjoy, but will not be liable to pay rent for the full rent period (unless, of course, they occupy for the full period)

The judgment has been welcomed as a victory for common sense, addressing the uncertainty and unfairness arising from Goldacre and Luminar.

The practical effect of the judgment is that we will likely see an end to the practice of companies being placed into administration the day after the rent fell due, with administrators no longer able to avoid paying rent for the rent period where the rent fell due immediately before they were appointed.

Given that rent will accrue on a day to day basis, office holders will need to give careful consideration as early as possible as to whether they wish to continue utilising a property for the benefit of the administration. If they do not, they should take positive steps to ensure that the property is vacant of all persons and chattels, thereby drawing a line under any ongoing rent liability for the premises. It is likely that this is where disputes will now arise, with landlords and office holders arguing over if and when a property was vacated, which will dictate what, if any, rent is due from the office holder.

It is worth noting that whilst each of the cases mentioned above concerned companies in administration, the Court of Appeal made clear that the principles applied equally to liquidators as it did to administrators.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.