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.

• Email This
• Print
• Comments (4)
• Share Link
• Mercer Hole Homepage
• Contact Us

We mention in a previous post and, briefly, in comments (here) the decision in the Trident Fashions case, Exeter City Council v Bairstow & Ors [2007] EWHC 400 (Ch) (02 March 2007), that the administrators were found liable to pay rates as an administration expense. The decision applies to administration cases generally and, in addition to causing consternation with its retrospective effect, it has significantly increased the cost of administration where there are substantial property assets.

The impact can sometimes be mitigated by applying to the court under para 79(1), Schedule B1, Insolvency Act 1986, for an order that the administrators be discharged with effect from the passing of a resolution to put the company into creditors' voluntary liquidation. Such was the decision in Re TM Kingdom Limited, as reported here by Theo Anderton and in the Law Society of Scotland's Journal here by Alistair Burrow. Sylvia Yendall notes here that it was also held in Re OM Recoveries Limited that an administrator may apply to court under para 79(1) when he considers it necessary or desirable.

Advantages of liquidation in thses circumstances are that unoccupied property rates are not a liquidation expense and a liquidator is able to disclaim onerous property.

• Email This
• Print
• Comments (1)
• Share Link
• Mercer Hole Homepage
• Contact Us