Commercial Property Focus - May 2010

A Glimmer of Hope for Landlords When Tenants enter Administration

Until recently, landlords often got a raw deal when their tenant entered into administration. Although premises were retained to enable the tenant to continue trading, landlords were treated as unsecured creditors and couldn’t recover anything more than a percentage of their rent. This situation looks set to change following a recent court decision stating that if premises are being retained for the benefit of creditors, then rent can be paid in full as an expense of the administration under the Insolvency Rules.

The case was Goldacre (Offices) Ltd v Nortel Networks UK Ltd and is a welcome decision for landlords particularly. The ruling has established that even if only part of the premises are being used, the rent for the whole of the premises will still be payable if the rent falls due when the property is being used for the benefit of creditors. This is particularly beneficial to landlords where rent is payable quarterly since it allows landlords to recover the full quarter’s rent.

Of course, there will be limitations and rent will not always be considered as an expense of the administration. Where premises are not actually being used to enable the tenant to continue trading but are retained whilst the administrator is managing the company’s assets, it seems unlikely that rent would be seen as an expense of the administration.  In addition, if the premises are such that they could be easily divided to enable parts of the premises to be let separately to third parties then landlords will be expected to do so and a full rent may not be recovered. 

In the main though, this decision is likely to be well received given that landlords could only recover very little in the event of their tenant’s administration before it. The fact that administration expenses are payable on a mandatory basis means that rent will no longer be simply a discretionary payment and administrators will need to budget for the rent when managing the company’s assets.  This may lead to premises being handed back to landlords at an early stage to save the expense of the rent payments.

Angela Penn is a solicitor in the property litigation team at Weightmans LLP, Angela.penn@weightmans.com

This article first appeared in the Liverpool Daily Post View Point on 5 May 2010