An important recent Court of Appeal decision, Pillar Denton Ltd and others v Jervis and others; re Games Station  EWCA Civ 180, has overruled the controversial “Goldacre Ruling” and significantly changed the law on how rent is paid during an administration. The Games Station decision means that, where an administrator uses leasehold property for the purposes of the administration, the reserved rent will be payable pro rata as an expense of the administration for the period for which the property is used. This decision will be welcomed by landlords who no longer need be concerned by the tricky and arbitrary rules surrounding administration rents which threatened to leave them out of pocket.
Previously, as a result of the “Goldacre ruling” (Goldacre (Offices) Limited v Nortel Networks (UK) Ltd  All ER (D) 54 (Jan)) and the Luminar decision (Leisure Norwich (II) Ltd and others v Luminar Lava Ignite Ltd (in administration) and others  EWHC 951 (Ch)), administrators had to pay rent as an “administration expense” if the rent only fell due after their appointment and they had used the property for the purposes of the administration. Administration expenses are paid in priority to debts in an administration or liquidation so rent payable as an administration expense is accordingly more likely to be paid in full than rent payable as a debt.
The timing of the appointment of administrators was often tactical. If administrators were appointed shortly before a quarter day, the rent for the entire quarter would be payable as an expense of the administration, regardless of whether the premises were used for the purposes of the administration for the whole of this period. On the other hand, administrators appointed just after a quarter day could effectively enjoy a rent-free period for the following quarter. The timing of the appointment of administrators could arbitrarily determine whether or not a tenant’s business would survive and whether or not landlords would receive rent.
The Game Station Decision
The Court of Appeal had to consider an application led by the administrators of Game Group, and a consortium of landlords. Game became insolvent in March 2012, and had owned several hundred stores which it operated from a variety of leasehold premises. As is typical, the rent was payable on the usual quarter days, quarterly in advance. The administrators were appointed the day after the quarter day and disposed of the business before the next quarter day. According to the Goldacre ruling, they could stay in the premises at the expense of the landlords, because the quarter’s rent would rank as an unsecured claim, meaning that administrators could avoid paying several millions of pounds in rent before selling the business on to the new buyer. The Court had to rule on whether the administrators had to pay rent “as an expense of the administration” in priority to the other unsecured debts.
The Court of Appeal held that where an administrator or liquidator makes use of leasehold property for the purposes of the administration or winding up, then the reserved rent is payable as an expense for the period during which the property is so used and will be treated as accruing from day to day. In other words, landlords are entitled to rent payable pro rata as an expense of the administration for the number of days for which the premises are used for the purposes of the administration or winding up. The date upon which a quarter’s rent becomes payable, and whether the administrators are appointed before or after that date, is irrelevant.
The decision re-winds the clock to the more pragmatic pre-Goldacre ruling position. Landlords no longer need be concerned by the risk of a tenant strategically entering administration just after a quarter day and avoiding rent payment obligations. On the other hand, tenants entering administration just before a quarter day will no longer be required to pay in full a quarter’s rent regardless of whether the property is in fact used by the administrators for the entire period. The Game Station decision provides a much-needed simplification of the rules regarding administration rents and, as such, should be welcomed by landlords and tenants alike.