Pillar Denton Decision
A change in the law entitles landlords to rent payments when a corporate tenant goes into administration and the premises are used by the administrator
Until recently, if a corporate tenant went into administration (or liquidation) after a quarter day (if rent was payable in advance), the administrator (or liquidator) could use the premises without any obligation to pay the landlord rent for the period of time the administrator was in occupation provided the administrator vacated the premises before the next rent day.
Whilst the administrator benefitted from a rent free administration, this put landlords at an unfair disadvantage as any claim for rent would be treated as unsecured and it would be extremely unlikely that any payment would be received by the landlords despite the fact that the landlord could not forfeit the lease or bring a claim for unpaid rent during this time (without the Court’s permission or administrator’s consent).
If the administrator was in occupation when the next quarter day fell due, the whole rent for the quarter (or month – depending on the terms of the lease) would become payable as an expense of the administration whether or not the administrator used the premises for the whole of that rent period. This often resulted in landlords receiving a windfall payment at the expense of other creditors.
Both scenarios were far from perfect and resulted in tenants waiting until the day after the next quarter day to go into administration thus ensuring that no rent would be paid by the administrator.
However, in a recent case: Pillar Denton Limited & Others v Jarvis , the Court took a more equitable view at the payment of rent to landlords. The Court held that the administrator must make payments to the landlord at the rate of rent for the duration of any period during which the administrator retains possession of the premises for the benefit of the administration. Duration is a question of fact and will depend on the circumstances
Accordingly, once a tenant enters into administration, the rent will be treated as accruing on a day to day basis and not determined by reference to which rent days occur before, during or after that period.
Further, the rent will be treated as an expense of the administration for the duration the administrator is in occupation thus ranking in priority to other unsecured creditors, including the administrator’s own fees.
The decision ensures that landlords are put on an equal footing with other suppliers of goods during the period of an administration and will result in payment of rent (unless there are no funds) to landlords for the time the administrator retains possession of the premises for the benefit of the administration.
If you have any queries regarding the payment of rent by an administrator, please contact our Ruth Ball on 01332 225384.