Administration and the Payment of Rent

The recent demise of Toys R Us and Maplin, with both going into administration and having over 300 stores collectively, seems to make it an appropriate time to review the position of the Landlord on the primary issue for them – who is going to pay the rent?

In brief, when a company goes into administration, rent will either be paid as an expense of the administration or it will be claimed as a debt in the administration, also known as a provable debt.

Why is the difference important? Because rent claimed/ paid as an expense of the administration must be paid in priority to the claims of creditors in respect of floating charges, preferential creditors and unsecured creditors.

Historically, there were conflicting decisions on the issue as to when rent was to be treated as an expense of the administration and when it was to be treated as a proveable debt (an unsecured debt), where the rent was payable in advance and fell due before the administration. It was thought unfair that some administrations took place on the day after a quarter day when rent was payable in advance in order to avoid payment of that quarter’s rent.

The issue was resolved by the Court of Appeal in Pillar Denton Ltd and others v Jervis and others [2014] EWCA Civ 180. A case that involved the administration of Game Stores.

It is now settled law that, an administrator must make payments at the rate of the rent for the duration of any period during which he retained possession of the premises for the benefit of the administration, and that the rent should be treated as accruing from day to day. The period of beneficial possession is to be determined as a question of fact. So for example, if the company continued trading at the premises, this would usually mean rent was payable for the period of trading.

Where payments fall due in advance during a period of retention by an office holder for the benefit of the administration, the court indicated that a wait and see approach was appropriate. In effect ‘pay as you play’ or more accurately pay for the period of beneficial occupation.

This blog was written by:  Michael Stewart

DISCLAIMER: Please note that this post sets out the general position under the general law. It should not be acted upon in any specific circumstances without taking specific legal advice as to those circumstances. Also, it should not be relied upon, acted upon or treated as a substitute for specific advice relevant to particular circumstances. If you do require specific advice please contact us for assistance.

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