This post was written by Katherine A. Campbell and Siobhan Hayes.
Just a short post to update our previous post on the issue of administrators being obliged to pay rent as an expense of the administration.
The recent case of Leisure (Norwich) II Limited v Luminar Lava Ignite Limited has confirmed the judgment in the Goldacre case. Administrators are liable to pay rent as an administration expense where rent payable in advance becomes due during a period when the administrator is occupying the property for the purposes of the administration. This is so even where the administrator gives permission to the landlord forfeit or vacates the property before the expiry of the rental period (usually a quarter). However where the administration takes place after the rent quarter day the whole of that quarter’s rent ranks as an ordinary unsecured claim in the administration. This applies to leases where rents are due in advance.
As a result of this case it is now clear that insolvency practitioners do not have to pay the rent that fell due before their appointment but must pay all of the rent falling due afterwards even where they do not plan to stay in occupation for the whole of the rent quarter.
Landlords have been reluctant to vary tenants leases to allow tenants to pay monthly in advance and not quarterly but those landlords who have done that will be in a better place in an administration as the unsecured rent arrears will be limited to just under a month rather than a quarter for those companies timing their administration to just after rent payment dates.
We expect to see administrators taking a harder line in respect of rent where they are appointed immediately following a quarter day and landlords will need to have a good look at what other leverage might be applied to persuade the administrator to pay.