Appeal granted on issues of rent as administration expense

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The High Court has recently given directions [1] relating to the priority of rent and service charges in the administration following an application by the administrators of the collapsed retailer, Game. This case now forms part of a string of cases where landlords and administrators have sought clarity on the question of whether rent and service charges are to be treated as an expense of an administration.

Pursuant to the decision in Goldacre [2], rent and service charges payable in advance and which fall due before the appointment of an administrator are not considered an expense of the administration, but where such rent falls due during a period when the administrator was occupying the property for the purposes of the administration, then the whole sum ranks as an administration expense. This position was endorsed in the Luminar [3] case.

However, the new owner of Game, who is in occupation of the properties under a licence to occupy, sought to challenge the Goldacre and Luminar principle, arguing that although the rent became due during a period when the property was being used for the purposes of the administration, if the administrator vacated, or the lease was forfeited, before the expiry of the rent payment period, the rent should not be considered an administration expense.

The High Court followed Goldacre and Luminar in the first instance, but granted permission to appeal on the basis that the new owners had a real prospect of success on appeal. The High Court also noted that the matter was of concern to administrators and landlords generally.

WM Comment
The Goldacre and Luminar decisions have come under much scrutiny so, from a practical perspective, it is hoped that an appeal will assist in clearing up this murky and contentious issue. Insolvency practitioners can, for now, rely on the protection of the existing principle but should be prepared to respond quickly should an appeal decision reverse Goldacre and Luminar.

Watch this space for further updates.

[1] In the matter of Games Station Limited and others (2013) (unreported)
[2] Goldacre (Offices) Ltd v Nortel Networks UK Ltd (In Administration) [2009] EWHC 3389 (Ch) [2010] Ch 455
[3] Leisure (Norwich) II Ltd v Luminar Lava Ignite Ltd (In Administration) [2012] EWHC 951 (Ch) [2012] 4 All E.R. 894