Sadly, this has been a fact of life for many commercial landlords in recent years and the obvious question for many is “will I get paid and if so, when?”
This has attracted considerable legal argument, specifically around how rent payable under a commercial lease should be treated if the tenant has gone into administration. If it is treated as an expense incurred by the administrator it will be given priority payment status.
If it is not, it is treated as an unsecured claim. The landlord joins other, similar creditors at the back of the queue (or at least, not at the front).
Past legal arguments
The Court of Appeal in the case of Pillar Denton Limited and Others v Jenkins and Others (1994) (“the Game Case”) went some way to addressing the position and providing some much needed clarity for both landlords and insolvency practitioners in this area.
The case law prior to Game broadly established that:-
- rent falling due before the start of an administration would not amount to an expense of the administration, even if the administrator subsequently took occupation of the premises during the relevant rental period for the purposes of the administration.
- rent falling due after an administration started amounted to an expense of the administration even if the administrator was not using the property for the purpose of the administration at all times during the relevant rental period.
The current state of play
The Court of Appeal in Game clarified the law in this area, holding that whether the rent fell due before or after the administration, only rent attributable to a period of occupation of a property by an administrator for the purposes of the administration would amount to an administration expense.
In respect of any period where it is not, the rent attributable to that period would not be treated as an administration expense.
What to do if you are faced with these issues
The Game case clarifies some issues for landlords, but leaves others unresolved, so there is still scope for arguing your case. In particular:-
- does the same legal principle apply to legal payments other than rent (i.e. service charges, insurance contributions or dilapidation payments)?
- what amounts to “occupation” by the administrators?
- whether administrators can now reclaim from landlords payments they have made to them under the mistaken belief they had priority over other debts of the Company and similarly whether landlords have to return these monies.
The above case has been referred to the Supreme Court for review therefore the principles referred to above may not necessarily represent the final legal position in relation to this complex area of law.
- Acting for land owners or property developers in relation to both residential and commercial development projects
- Advising on the structure and content of the legal documentation associated with the sale and acquisition of development sites
- Negotiating section 106 planning agreements
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- Plot sales / disposals
Landlord and Tenant
- Advising landlords and tenants in relation to the taking of and the grant of commercial leases of all form of commercial property
- Dealing with subleases of commercial premises
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- Dealing with commercial remortgages
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- Acting for liquidators, administrators in bankruptcy in the sale of all forms of commercial property
- Acting on and dealing with the sale of property under the Proceeds of Crime Act
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Property related Pension Schemes
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Sales and Acquisition of Commercial Property
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Making a claim for negligent advice
The client asked us to consider and advise on the conduct of their former solicitors during both of the cases. We careful analysed many files and documents, including the former solicitors’ files, and concluded that the client had a claim.
We pursued the solicitors for negligent advice and handling of the cases, with a view to recovering our client’s losses. This involved extensive dealings with the firm, through their professional indemnity insurers and city lawyers.
They refused to pay the claim, despite being provided with considerable supporting evidence and legal argument during various attempts to negotiate and settle the dispute.
Pursuing the professional negligence case in the High Court
We started High Court proceedings, which the former solicitors defended by denying the allegations and raising a number of technical legal points.
Ultimately we exerted sufficient pressure in the litigation to force a settlement before the case reached trial, resulting in our client recovering a six-figure sum. This represented the vast majority of all legal costs they had paid, as well as Verisona Law’s legal fees.
Individual Property Owner
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MD of Textile Wholesaler
"Having recently used Verisona Law to help recover a commercial debt due to us, I would highly recommend them. Jeremy was very professional and helpful, giving information throughout the case, and he was also very calm which really helped us."
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