Game Changer – Victory in court of appeal for landlords
A judgement delivered last week by the Court of Appeal in the case of Jervis & Others v Pillar Denton & Others – better known as the Game Station case – will affect the way in which rent is treated in Administration going forward, reports Sam Corbett, Associate with A&L Goodbody.
The financial impact of this decision will be felt in Northern Ireland by tenants, insolvency practitioners and secured creditors alike, particularly in retail sector insolvencies.
Prior to this judgement – as per the previous decisions of Goldacre and Luminar – where rent was payable in advance and an Administrator was appointed after the rent date had passed, any outstanding rent was classed as unsecured debt. The landlord was therefore listed alongside the company’s unsecured creditors and was highly unlikely to recover the outstanding rent in its entirety. The Administrator, meanwhile, was entitled to continue using the premises without payment until the next rent date.
In the recent Game Station appeal Lord Justice Lewison stated that Goldacre and Luminar had “left the law in a very unsatisfactory state”. He held on the Appeal that rent fell within the principal variously known as the ‘salvage principle’ or ‘Lundy Granite principle’, whereby an Administrator making use of premises for the benefit of the Administration should pay for that use. He therefore allowed the appeal, meaning that Game Station will now have to pay the landlord around £3million in outstanding rent.
He set down the position as follows: an Administrator must make rent payments for the duration of the period in which possession of the leased premises is retained under the Administration. That is, rent will be treated as accruing from day to day and such payments will be treated as an expense of the Administration. The duration of the period is a question of fact, regardless of whether rent days occur before, during or after that period.
This decision provides welcome clarity on what was a hotly contested issue and will be welcomed by the property / landlord profession. For insolvency practitioners, it will bring clarity to the law and will give them a clearer picture as to what payments under a lease will rank as Administration expenses.
The decision will likely lead to the end of the practice of strategically timing Administration appointments until after the quarter day in order to avail of a rent-free period of occupation. On the flip side, however, it will allow Administrators to benefit from increased flexibility – since there will no longer be a drive to exit premises before the next quarter day to avoid having to pay rent for the incoming quarter, irrespective of future occupation.
In my view, the decision is consistent with common sense and is the fairest outcome for all concerned, striking a balance between landlords and insolvency practitioners.
Whether Game Station considers a further appeal to the Supreme Court, however, remains to be seen.