Some landlords struggle with their position in administrations (especially pre-packs) and CVAs, as illustrated by the naturally landlord-centric perspective of insolvency given by the British Property Federation.

Landlords are so used to their powers of distraint and forfeiture maintaining their income streams from financially distressed tenants that they can fail to appreciate that formal insolvency will recognise them as mere unsecured creditors (albeit with a property that may or may not have value to the business) alongside all other suppliers.

I've talked about the issues of CVAs and Landlords before on this blog and commented on tenant insolvency under the InsolvencyNews item Rent deadline threatens retailers.

There is clearly much ground to be covered in convincing all landlords that it is not the insolvency procedure that causes them loss, but the underlying insolvency and the mismatch between their income expectations and the revenue that the property is able to generate.

Particularly in multi-site businesses there is no rationale for an insolvent business to continue to occupy uneconomic premises. All creditors should recognise that, whatever their particular concern, the business should, and the insolvency practitioner will, maximise overall value - even if some individual creditors, such as landlords with leases that have no value to the business, cannot continue to supply to the continuing or successor business.

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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.

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