Game Changer: Payment Of Rent By Administrators

Summary and implications

An administrator who uses premises for the purpose of the administration must pay rent as an expense accruing on a daily basis: Game (Pillar Denton & ors v Jervis & ors [2014] EWCA Civ 180).

Whether the liability for rent falls due before or after the date of the administration is irrelevant.

This means that administrators can no longer, tactically, put companies into administration just after a quarter day to avoid paying rent for that quarter as an expense while retaining occupation.

The principle should equally apply to other payments due under the lease where the premises are used for the benefit of the administration, such as service charges and insurance.

This decision should be welcomed by landlords and insolvency practitioners alike, creating a fair position for both. However, unsurprisingly, Game has now applied for leave to appeal to the Supreme Court, leaving the door of uncertainty open for possibly yet another match.

Treating rent as an administration expense

Liabilities arising under contracts entered into pre-administration are usually treated as a debt provable in the administration. These rank as an unsecured claim along with all other unsecured creditors.

In contrast, expenses are properly incurred by the administrator in performing his functions in the administration of the company. Clearly, an expense can only be incurred once the company is in administration.

The importance of this distinction is that expenses are paid in priority to all other claims except fixed charge debts. This may mean the difference between being paid or not, depending on the assets available.

Administrators maintained that any rent payable (usually quarterly) in advance, which fell due before the administration is a debt, not an expense, because it is not subject to apportionment (under the common law or statute): therefore the whole quarter's rent falls due on the quarter day. It was argued that no part of a quarter's rent which fell due pre-administration could be treated as an expense, even if the company went into administration during the quarter and then used the premises.

Win some, lose some – the pre-Game rules

The Game appeal was pursued by four landlords as a result of two earlier decisions: Goldacre (Goldacre (Offices) Limited v Nortel Networks UK Limited (in administration) [2009] EWHC 3389(Ch)) and Luminar (Leisure (Norwich) II Ltd & Others v Luminar Lava Ignite Ltd (in administration) [2012] EWHC 951 (Ch))...