Landlords beware - post administration rent is an unsecured claim
A landlord has no automatic right to be paid rent as an administration expense and, as regards rent falling due after the date of the administration order, the landlord is an unsecured creditor of the tenant company.
In case there had been any doubt after the Trident Fashions case, where business rates were found to be an administration expense and some commentators suggested, by analogy, that rent would be treated similarly, Innovate Logistics Ltd v Sunberry Properties Ltd [2008] EWCA Civ 1321 (18 November 2008) clarifies the position.
It does not mean that a company can occupy premises rent free after administration, but the court will exercise its discretion in considering whether to allow the landlord to override the statutory administration moratorium according to the guidance in Re Atlantic Computer Systems plc.
That guidance illustrates that significant financial loss to the landlord in the event of the landlord not being able to enforce his proprietory rights could be outweighed by loss to the creditors in the event that occupation of the premises came to an end.
Accordingly, in practice, the administrator and the landlord will need to consider the balancing exercise the court would undertake, and some payment - perhaps even the full amount of the rent due - may have to be made, effectively as a ransom payment in respect of the landlord's unsecured claim.
Comments (4) Read through and enter the discussion with the form at the end
Hi Chris - very interesting stuff. I have a similiar situation which may lead to contested litigation. For what it is worth I share your view, but many others say rent post-appointment is an expense (even without an undertaking) if the company benefits from occupation. I would be interested to know whether you reached this view having encountering this in a legal context (maybe with the benefit of counsel's advice) or in practice?
CJ
The result of your contested litigation will be interesting - let us know!
Whether rent where the company benefits from occupation post-administration is treated as a ransom payment or an administration expense is reasonably academic, except insofar as it reflects the court's likely analysis, which will take account of Innovate. Most balancing exercises of the parties' rights in such cases will, I suspect, lead to most or all the post-appointment rent being paid one way or another.
Chris
Very interesting stuff. I have a problem as a landlord to a co. that went into administration. The administrators were appointed just before quarterly rent was due. The site was occupied by the administrator for approx 1 month and they have said they will pay 1 months rent if I surrender the lease but i feel I am owed at least 4 months rent. Do I conclude from the above that I can try and balance this and agree on say 2 months rental payment or do i not have a leg to stand on? Cheers
JJ
It looks to me as if you should get one month's rent in any event. If I were you I would treat the issue of surrender as a completely separate matter. The company (in administration) is on the hook for rent but if the court were carrying out its balancing act you would probably need to have shown you have mitigated your losses.
I recommend you take specialist advice rather than act on the basis of this type of general discussion.
Chris