Blog: Courts pave the way for landlords to challenge administration rents

Two major court cases have left wide open the question of how rent is treated when a tenant enters administration, setting the stage for a showdown between landlords and retailers.

The High Court has considered whether the administrators of Game Group, which owned over 600 stores and had a £12 million quarterly rent roll, had to pay substantial rent arrears to landlords. The retailer appointed PwC as administrators shortly after the March 2012 quarter day without paying quarterly rents.

Following the landmark Goldacre ruling from 2010 and last year’s Luminar Leisure case, any rent falling due before the appointment of administrators is treated as an unsecured debt and not an expense of the administration. This meant that Game’s landlords stood to lose several millions of pounds in rent despite most of the stores continuing to trade and the administrators selling the business the following month.

This area of the law has proved hugely controversial and landlords have long suspected that administrations are being deliberately timed to avoid rent payments. Game proved the final straw, prompting a consortium of some of the UK’s largest landlords including Land Securities, British Land, Hammerson and Intu (formerly Capital Shopping Centres) to mount a legal challenge to recover the unpaid rent.  If successful, administrators could be forced to pay a daily rent for their period of use. The issue is of such importance that the court fast-tracked it straight to the Court of Appeal, where a final decision is expected in February.

In the same month, the Supreme Court gave its much anticipated judgment concerning the insolvent Nortel telecoms group. The case concerned a £2 billion pension deficit but led to a wide-ranging review of the law which some hoped would address the rent issue. It was not to be, leaving landlords with everything still to play for.

• Mathew Ditchburn is a partner in Hogan Lovells’ real estate disputes team