Some of Britain’s biggest landlords are due to be paid more than £3m they are owed in rent by the administrators of the collapsed Game retail chain, the Court of Appeal has stated in a landmark ruling.
British Land, Intu, Hammerson and Land Securities all claimed they were owed millions of pounds in rent while Game was under administration. Game filed for administration in March, 2012 and the property quartet went to court in a bid to claim back missing rental payments.
The question of whether, and to what extent, administrators should be required to pay rent to landlords as a priority over other creditors has been a controversial issue for years. In what is seen as a far-reaching judgement the Court of Appeal has now laid down clear guidance for landlords, insolvency practitioners and retail tenants.
In future rent will be charged on a pay-as-you-go basis, putting an end to “tactical” administrations which enable retailers to operate for free if they file for administration just after quarter day. It’s a judgement long overdue, according to the British Property Federation (BPF).
“Moving to a pay-as-you-go basis for rent will increase fairness in the system not only for the landlord, who will receive the rent that they are due, but also to the insolvency practitioner, who will benefit from increased flexibility,” said Ian Fletcher, the federation’s director of policy.
“The news of this ruling is hugely welcome, and it is excellent to see that common sense has prevailed. This is the fairest outcome for all, as it means that landlords get paid and that insolvency practitioners can trade over the best timeframe for the rescue of the business,” he added. “It is patently unfair that landlords’ property could be used without payment of rent.”
In a statement issued after the ruling, Game said: “The Court of Appeal’s decision in this important test case for the property and retail markets fundamentally changes the law in relation to the payment of rent in an insolvency context. There were important principles at stake for commercial landlords, retail tenants and, indeed, any company with property assets.
“Game’s exposure following this decision is limited to a one-off liability of £3m which has already been accounted for. The real ramification of this decision.” the company added, “is that it will have a significant financial impact on all landlords, tenants and insolvency practitioners involved in current and future business insolvencies in this country.”
During the 11-day hearing, Game argued against the law being changed on legal and commercial grounds. It is now considering an appeal to the Supreme Court.
Alistair Hill is a solicitor with restructuring and insolvency group, Simmons & Simmons. “The Court of Appeal has endorsed a common sense ‘pay-as-you-go’ principle for administrations,” he said. “The Court has, in fact, ensured a fairer balance between landlords and other creditors of failed companies. This judgment will, pending any appeal, see the end of the recent practice of administration appointments being timed artificially to benefit from a rent free quarter.”
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