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Landlords beware - post administration rent is an unsecured claim

A landlord has no automatic right to be paid rent as an administration expense and, as regards rent falling due after the date of the administration order, the landlord is an unsecured creditor of the tenant company.

In case there had been any doubt after the Trident Fashions case, where business rates were found to be an administration expense and some commentators suggested, by analogy, that rent would be treated similarly, Innovate Logistics Ltd v Sunberry Properties Ltd [2008] EWCA Civ 1321 (18 November 2008) clarifies the position.

It does not mean that a company can occupy premises rent free after administration, but the court will exercise its discretion in considering whether to allow the landlord to override the statutory administration moratorium according to the guidance in Re Atlantic Computer Systems plc.

That guidance illustrates that significant financial loss to the landlord in the event of the landlord not being able to enforce his proprietory rights could be outweighed by loss to the creditors in the event that occupation of the premises came to an end.

Accordingly, in practice, the administrator and the landlord will need to consider the balancing exercise the court would undertake, and some payment - perhaps even the full amount of the rent due - may have to be made, effectively as a ransom payment in respect of the landlord's unsecured claim.

 

 

Date: 9th February, 2009
Author: Chris Laughton

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