Court of Appeal ruling benefits landlords
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Published 12th March
The Court of Appeal has ruled that administrators of a
business must pay the full rent for the period a property is used for
the benefit of an insolvency, whether the rent is payable in advance or
As a result of this ruling, our advice to landlords is that
you should seek legal advice before automatically forfeiting a lease
when your tenant goes into administration, as forfeiture might not be
your only legal option and may not be the best one.
Lord Justice Lewinson said that rent should be treated as
accruing from day to day, and should be payable as an expense of the
winding up of the company. He also said that the law had been left in a
"very unsatisfactory state" by previous High Court rulings on the issue.
The decision came as part of a case involving one of the
companies in the Game group, which was the tenant of hundreds of
leasehold retail properties.
Rent on most of the shops was payable in advance, and on 25
March 2012, around £10m in rent became due under various leases. The
group entered administration the following day.
Trading continued in some stores, and some £3m of the March
rent remains outstanding for those properties. The judge said one
consequence of previous High Court rulings was that it had become more
common for companies to enter administration on the day immediately
following a ‘quarter day’, to avoid liability to pay the rent in full
even if keeping possession.
"From the perspective of the landlords the position is
exacerbated by a swift sale of the business to a new company that can,
in effect, trade for the first three months rent-free. Unsurprisingly,
landlords are discontented with the legal position."
Overruling two previous High Court rulings, he also said: "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."
Lewinson LJ allowed the appeal. Lord Justice Patten and Lady
Justice Sharp agreed.
A spokesman for the British Property Federation said that
organisations including British Land, Hammerson, Land Securities and
Intu would now receive over £1m in overdue rent as a result of the
Court of Appeal's ruling.
Written by Katherine Cereghino
About the Author
Lawson-West specialise in commercial, business and employment law. Our team
of dedicated commercial solicitors can help with buying or selling a business,
business law and disputes, landlord and tenant issues and commercial property.
Our expert employment team can offer practical advice and guidance on all
aspects of employment law including redundancy, compromise agreements and
dismissal procedures. Visit
www.lawson-west.co.uk for more information.
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Article Published/Sorted/Amended on Scopulus 2014-03-19 10:10:38 in Legal Articles