Rent as an expense of the administration - Goldacre case overturned
The Court of Appeal in England has overturned the decision in Goldacre and ruled that a group of major UK landlords were entitled to recover rent as an expense of the Game administration from the Game administrators even though the rent payment day fell before the date of the administrator's appointment. The decision closes a loophole in the law that allowed tenants and their appointed administrators or liquidators to avoid paying rent as an expense of the administration or liquidation while in administration or liquidation. The judgement could have significant implications for the property sector.
In the 2009 Goldacre case, administrators avoided having to pay rent because the company went into administration a day after a rental payment was due. Following that decision it remained unclear how rent falling due prior to an administrator's/liquidator's appointment, and the subsequent occupation of the property for the purposes of the administration/liquidation by the administrator or liquidator, were to be treated. Until the Game decision, where rent which was due to be paid before the date of appointment and was not paid there would effectively be a period until the next rental payment day where the administrator/liquidator could occupy the property rent free. All previous attempts to challenge this position had failed.
In the Game administration, administrators were appointed on the day after the March 2012 rental payment day, with the result that substantial rent payments were avoided. On an application by administrators for directions the court gave permission to appeal to the Court of Appeal on the issue of the extent to which rent falling due both before and after the appointment of administrators were to be treated as expenses of the administration and therefore be paid out by the administrator ahead of certain other classes of creditors.
In the leading judgment Lord Justice Lewison said: "The result of Goldacre and Luminar has left the law in a very unsatisfactory state." He added: "The office holder must make payments at the rate of the rent for the duration of any period during which he retains possession of the demised property for the benefit of the winding up or administration (as the case may be). The rent will be treated as accruing from day to day. Those payments are payable as expenses of the winding up or administration. The duration of the period is a question of fact and is not determined merely by reference to which rent days occur before, during or after that period".
The decision means that if an administrator/liquidator continues to occupy or trade from a leased property, they must pay "rent" for the whole period of their occupation regardless of when the rental payment dates fall.
Whether this position will apply to service charges remains to be confirmed as although the High Court discussed the treatment of services charges at first instance, the Court of Appeal decision refers only to rent.
While this is a decision from the English Court of Appeal it is likely that the Scottish courts will follow this decision should a similar case come before the Scottish courts.
I believe that whilst, ostensibly, the Game decision creates a fairer position where a tenant in administration continues to trade from landlords' premises, it also has the potential to deny a crucial period of breathing space to tenants in difficulty in a retail market which remains extremely challenging for many, and that may ultimately lead to store closures and job losses at an earlier point in the process, where previously tenants would have had an opportunity to find a workable solution.
The judgment can be read here: