Landlords have won their appeal this month in the high profile case surrounding the administration of the computer games company ‘GAME’.  According to the Court of Appeal approximately £3 million in unpaid rent remains outstanding to Landlords from March 2012.The decision of the Court of Appeal has closed the loophole that allowed administrators to trade from the property rent free (for up to 3 months) following a tactical entrance into administration the day after a rent payment date. This week’s ruling allows Landlords to claim rent from administrators when they are using a property as ‘an expense of the administration’.  This entitlement to payment of rent as an ‘expense of the administration’ gives Landlords priority over other creditors.

The previous position that had been established in Goldacre (2009) and affirmed in Luminar (2012) had been that if the rent payment date fell due prior to the administration then none of the rent payable during that rental period was payable by the administrators in priority to any of the other creditors. If the rent payment date fell after the administration then the rent was payable in priority to other creditors as an ‘expense of the administration’.

Hammerson’s Head of Credit Control Duncan Grubb quoted in Retail Week said: “The previous system [Goldacre/Luminar] was deeply unsatisfactory for both landlords and insolvency practitioners and this judgement provides a workable, common-sense resolution to the payment of rent as an administration expense.

“This judgement will significantly change the relationship between landlords and insolvency practitioners, and will hopefully lead to more collaboration when dealing with critical situations. Corporate restructuring will now be focused purely on trading patterns and the viability of the ongoing business, rather than on rent free periods from landlords provided by a legal loophole.”

So what does this mean for Landlords and Administrators:

1                 Landlords may be able to claim back unpaid rent from administrators;

2                 Tactical timing of administrations (to avoid rental payments)  should be a thing of the past;

3                 Rent will accrue day to day to Landlords during an administration;

4                 Administrators may have to close shops/stop using premises sooner due to rental obligations.

5                 The established principle that rent is not apportionable may be under threat.

However whilst the decision has brought clarity to this area, the decision is likely to be appealed to the Supreme Court so Landlords' pleasure at the decision may be short lived.