Landlords In Retail Administrations Test Case

A group of leading property companies, including Land Securities, Hammerson and British Land, will be looking to the Court of Appeal to rule in their favour today in a case against the computer retailer Game, who went into administration owing millions of pounds in rent to them. Nearly 300 Game stores were closed by the administrators but now the retailer is close to launching a £300m stock market flotation after a significant turnaround in its performance since it was rescued from the administration by Henry Jackson’s OpCapita and the hedge fund Elliott Advisors. The hearing is also seen as a test case and could lead to major changes in how administrations work in the UK, giving greater priority to property companies.

Landlords have complained that they are being short-changed by the administration process. In a joint statement in October 2012, insolvency trade body R3 and the British Property Federation said that the current position gave companies an incentive to appoint administrators just after ‘quarter day’, the traditional deadline for quarterly advance payment of commercial property rent. The retailer, however, will argue that the existing laws should be upheld.

If the landlords are successful, Game and its backers could have to pay out roughly 10% of its annual rent and service charges. Landlords allege that the “new Game” was able to operate rent-free for three months because of a legal loophole in the administration process. Under the existing law, rent that is due during an administration is payable as an expense if the business continues to use the property. However, if a company files for administration just before quarterly rent day and administrators are appointed within 10 days, the rent can legally go unpaid. Game appointed PwC as administrator the day after it was due to pay rent for the next quarter. Landlords hope the rules will be changed to allow pay-as-you-go rent rates during administrations.

Earlier Comet collapse caused concernAfter the controversial collapse of OpCapita’s Comet, the electrical retailer, in 2012, the Government has come under increasing pressure to tighten the laws surrounding administration and to close the loopholes that allow businesses to escape payments to creditors – and sometimes subsequently resurrect themselves.

OpCapita is thought to have received close to £70m from the collapse of Comet while unsecured creditors, mainly landlords, were thought to have lost in the region of £200m. “There is a strong feeling among landlords that a point of principle has to be made,” the landlords said. “We would like to see a pay-as-you-trade arrangement for space which suits both landlords and retailers.”

A study last year from Company Watch found that £499m was recovered in assets from the 19 biggest retail failures since 2012. Of this only £14m was returned to unsecured creditors such as suppliers, landlords and customers. For advice on retail property issues and administrations speak to a commercial real estate or insolvency and corporate recovery lawyer.

IBB has one of the largest real estate groups in West London and the South East, with expertise in commercial real estate, residential development, real estate finance, construction and real estate dispute resolution. Contact a member of the team by visiting the relevant service page, call us on 08456 381381 or email CRE@ibblaw.co.uk.