In January we posted on the impact of a case that ruled that landlords are able to claim rent as an expense of the administration when a tenant’s administrators are in occupation of all or part of a leasehold property. In another win for a landlord, the Court ruled that rent can be claimed as an expense of the administration when a tenant’s administrators permit occupation of the leasehold property under a licence. With the balance tipped a little more in favour of the landlord we think this may change the way administrators deal with property.
Both cases have made it clear that the rent was an expense of the administration which automatically ranks ahead of other claims in the administration (even the administrators own claim for payment). The new developments are:
- the Court does not have a discretion in whether to order payment or how much, the expense the landlord can claim is equal to the rent due under the lease;
- that rent is likely to be payable even if only part of the property is occupied;
- it does not matter if the property is occupied by the tenant company or by the company buying the business from the administrators.
In the recent case (Cheshire West and Chester Borough Council v Springfield Retail Ltd) administrators sold the tenant’s business and allowed a company connected with the buyer to occupy the property under a licence which required rent to be paid direct to the landlord. No rent was paid. The landlord did not consent to the licence. Eventually, the landlord changed the locks and the lease was forfeited. The landlord claimed the rent for the licence period from the administrators as an expense of the administration.
The improvement for landlords arising from this recent case comes from the fact that the court considered that the administrators used the property for the purpose of the administration when they granted the licence to occupy as part of the business sale.
Our experience for our landlord clients is that administrators often refuse to supply any information about who they have allowed to occupy the property and certainly resist any claims for rent to be paid. Now life will not be that simple and landlords will be able to press harder for payment than before.
What will administrators do differently?
- Where rent is significant and use of the property is essential, we are already seeing some careful timing of appointments so that administrations commence just after a rent payment date. That way there is a gap before the landlord can claim the next rent payment from the administrators as an expense of the administration.
- The days of permitting buyers to occupy as licencee and ignoring the landlord may no longer produce the best result for the creditors. Administrators may now need to engage with landlords at an early stage to agree economic terms for the temporary occupation of the property. Landlords may prefer this to an administrator vacating property early to avoid the next rent payment.
Whether we see more pre-packs or CVAs remains to be seen.
For advice, please do get in touch with your usual contact at Reed Smith or the authors.