Landmark Ruling for Landlords: Dispute over rent and how it is treated in Administrations

Landlords have hailed a ruling at the Court of Appeal on Monday as a “landmark decision”. Four leading commercial and retail landlords won a long-running dispute over rent and how it is treated in administrations. British Land, Hammerson Land Securities and Intu Group (formerly Capital Shopping Centres) have been successful in their appeal cases against GameRetail, the phoenix company raised from the ashes of collapsed computer game retailer Game. Their claim was that around £3m of unpaid rents from former Game stores should be treated as an administration expense.

Game went into administration on 26 March 2012, the day after its quarter rent was due. Under the then existing legal precedent, the retailer was able to continue to operate from the stores without paying rent for the remainder of the quarter. Landlords took offence at the move and launched legal action. Under the appeal court ruling, rent will now be charged on a “pay-as-you-go” basis, putting an end to “tactical” administrations. Read the judgement in full here. The ruling is subject to any appeal to the Supreme Court. Speak to a property dispute lawyer to discuss the ruling and its possible implications.

“Workable, common-sense resolution”

The Chairman of the British Property Federation‘s Insolvency Committee Duncan Grubb, said: “The previous system was deeply unsatisfactory for both landlords and insolvency practitioners and this judgment provides a workable, common sense resolution to the payment of rent as an administration expense.” He added: “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.” Intu asset manager Kate Grant said in response to the ruling: “This was the only possible fair outcome of the case and one where common sense prevailed. We believe that all suppliers should be treated fairly. Why should a company in administration still have to pay their utility bill but not their rent? “By working together, the landlords have closed a damaging loophole and now we can look forward to a productive and collaborative relationship with insolvency practitioners and retailers.”

Jon Mowbray, Real Estate Litigation Partner at IBB, commented:

“Understandably this decision has been welcomed by commercial landlords who have justifiably felt that the law as it previously stood was not fair. The tactical appointment of administrators shortly following a rent payment day combined with the limitation on the steps that a landlord can take to secure payment or recover possession during the administration meant that landlords felt powerless. Their asset was being used to support the company in administration but they were simply left with a claim in the administration which, at best, would result in the recovery of a few pence in the pound. However, insolvency practitioners will also see the benefits of the decision. The company in administration will only have to pay for the period it is using the premises and so if it is in occupation on a rent payment day but vacates prior to the end of the rent period, it will only be liable for an apportioned sum“.

Retailer Game collapsed into administration on 26 March. It had more than 600 stores across the UK and Ireland. A few days after the administration it was acquired by private equity firm OpCapita, which rescued around 300 stores. In June 2012, landlords aligned to try and recoup their rental losses on Game and so began a lengthy battle. A study in 2013 from CompanyWatch found that £499m was recovered in assets from the 19 biggest retail failures since 2012. Of this only £14m had been 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.