Game changer for landlords02 Sep 2016
Until recently the law in administrations was that if a quarter’s rent is payable in advance:-
- If it fell due for payment before the commencement of the administration then no part of it was payable as an expense even if the Administrators obtained the property for the purposes of the Administration;
- If it fell due for payment during the period in which the property was used for the purposes of the administration then the whole of that quarter’s rent was payable in full as an expense of the administration.
“Expense” with regards to administrations is an umbrella term used to define liabilities which the Administrator is to pay in priority to other creditors (other than those secured by a fixed charge).
This led to Landlords frequently missing out on the rent being paid for at least one quarter as the administration would often deliberately commence the day after the quarter date allowing the tenant company in administration to occupy the premises for a rent free period of almost three months.
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This has now changed. On 24 February 2014 the Court of Appeal handed down judgment in Jervis v Pillar Denton, re: Games Station . This decision has changed the entire law on rent falling due during an administration or liquidation. The key points arising from the decision are as follows:-
1. Where an administrator or liquidator makes use of leasehold property for the purpose of administration or winding up then the reserved rent is payable as an expense for the period during which the property is used and will be treated as accruing from day to day for that purpose;
2. This is true whether the rent is payable in arrears or in advance;
3. The date upon which a quarter rent becomes payable, and whether that is before, during or after the period during which the property is used for the purposes of the administration or liquidation, is relevant. Occupancy is now the determining factor not the vagaries of the quarter days.
In summary the administrator or liquidator must make payments at the rate of the rent for the duration of any period during which he obtains possession of the property for the benefit of the winding up or administration. The rent will be treated as accruing from day to day and is payable as an expense of the winding up or administration (in priority to unsecured creditors).