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Victory for commercial landlords?

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Commercial landlords could be excused for not knowing exactly where they stand with administrators. Do commercial landlords with tenants who enter into administration have to leave it to chance as to whether they will receive rent payments or not? 

Previously rent would generally be paid by administrators as a “gentleman’s agreement”.  Most administrators would pay rent on a daily rate for the use of the premises. Occasionally some landlords would not be paid, but generally the system worked. Some landlords raised issue with the system and argued that rent should be paid as an expense of the administration.

Back in 2009, the position changed following the Court of Appeal’s decision that rent was an expense of the administration. This was heralded as a victory for landlords. Some three years on the Court of Appeal’s decision has received further endorsement by the Courts but what looked like a victory can only now be viewed as a lottery.

The reason for the lottery is to do with the apportionment of rent. If an administrator is appointed after a quarter day, then no part of that quarter’s rent is payable as an expense by the administrator even if the property is used for the rest of the quarter.

Whereas if a quarter day falls after the appointment is made, the rent is payable for the whole of the quarter even if the property is only used for a short proportion of it. This looks like a windfall for landlords but the reality is that landlords risk administrators making tactical appointments in the future avoiding appointments until after the quarter day to prevent losing out.

This surely is at the expense of commercial sense.

By associate solicitor and landlord specialist, Louise Hebborn