Goldacre (Offices) Limited - When Post Administration Rent Is Payable As An Expense

Facts Of This Case

Prior to administration, Nortel had entered into two long leases with the landlord, Goldacre, in respect of two properties. Following administration, Nortel continued to use part of the premises in both of the demises for the benefit of the administration. All rents were paid up-to-date, albeit late so far as the September quarter rent was concerned. This case concerned the payment of future rent and addressed three questions:

Whether future rent was payable as an administration expense? If so, whether the rent so payable should be restricted by reference to the company's period of administration occupation, or whether it extended to the full amount of quarterly rental payments falling due during the administration occupation? Whether any obligation to pay rent as an administration expense should be limited by reference to the proportion of the premises actually occupied or used by Nortel, or whether it extended to the whole of the demise. To view the article in full, please see below:

Full Article

In a landmark reversal of current opinion, HHJ Purle QC decided in the recent case of Goldacre (Offices) Ltd v Nortel Networks UK Ltd [2009] EXHC 3389 (Ch) that rent falling due while a company in administration retains possession or use of any part of leasehold premises for the purposes of the administration will now normally be payable as an administration expense

Background

Liabilities incurred by a company before administration are generally treated as unsecured debts of the company. They do not normally enjoy priority as an administration expense unless the administrator adopts the contract. Prior to this case, that was the starting position for leasehold liabilities, which derive from contracts entered into by the company before the administration. Often administrators and landlords would negotiate terms, and landlords would sometimes seek to improve their position by seeking consent to forfeit the lease of premises occupied by a company in administration (which requires the administrator's or the court's consent because of the administration moratorium). If the landlord was refused consent to forfeit, it would sometimes be granted the right to a payment of rent referable to the period of the administration occupation. In other examples, the landlord's payment might be based on what was considered to be equitable in the circumstances.

Prior to 2003, the administration expenses regime was regarded as altogether different from the liquidation expenses regime. The general view was that the old administration expenses regime involved some discretion, taking account of liabilities incurred for the benefit of the administration, and balancing the interests of the creditors as a whole. However, there was a big change in the administration regime in...