New High Court decision on payment of rent as an administration expense: In re Luminar Lava Ignite
On 28 March 2012, HHJ Pelling QC, sitting as a High Court Judge in the Companies Court, gave judgment in applications made by landlords against administrators of tenants in the Luminar group, the first of which was In re Luminar Lava Ignite. Stephen Jourdan QC, leading Blair Leahy, acted for the landlords.
There were two applications. First, for permission to forfeit. Second, for the payment of rent as an expense of the administration. The issues raised are commonly encountered where tenants go into administration.
The administrators were appointed on 28 October 2011, and the applications were issued on 12 December 2011. The administrators refused consent to forfeit until 26 March 2012, the day of the hearing, when they gave their consent. The administrators had agreed to assign the leases to a new company, and had let that company into occupation. They refused consent to forfeiture, until the day of the hearing, because they hoped that the landlords would give consent to the assignment, even though the landlords had made it clear they would not give such consent unless the conditions in the leases for seeking licence to assign were satisfied. The Judge held that, had the administrators not given their consent, he would probably have given permission to forfeit, and ordered the administrators to pay the landlords’ costs of this issue.
Rent as an expense
The administrators accepted that they had to pay the rents which fell due on dates after their appointment as expenses of the administrations, including the full quarterly rents which fell due on 25 March 2012, the day before they gave consent to forfeiture. They did not accept that any part of the quarterly rents which were payable on 29 September 2011, the quarter day before their appointment, should be payable as expenses. They relied on the decision in Goldacre (Offices) Limited v Nortel Networks UK Limited (in administration)  Ch. 455 (see http://www.falcon-chambers.com/news/index.cfm?id=371).
The landlords argued that, where a landlord wishes to forfeit, and is prevented from doing so, all the rent which the lease requires to be paid as a condition of avoiding forfeiture is an expense. They relied on the decision in In re Silkstone And Dodworth Coal And Iron Company (1881) 17 Ch D 158. They said that the decision in Goldacre did not concern the right of a landlord to recover rent in full in this situation.
HHJ Pelling QC held that:
1 Where rent is payable in advance and falls due on a date before the commencement of an administration, no part of it is payable as an expense. That is so even though the administrator retains the premises for the purposes of the administration for the whole or part of the period of occupation for which the rent is payable, and even though the landlord wishes to forfeit but is prevented from doing so.
2 Where rent payable in advance falls due on a date during the period when the property is being so retained by the administrator, the whole of the rent is payable as an expense. That is so even if the administrator gives permission to forfeit or vacates before the expiry of that period.
3 Where rent is payable in arrears and accrues due after the commencement of the administration, at a time when the administrator is retaining the premises, with part of the rent due in respect of a period prior to the commencement of the administration, the position is as follows. The rent is to be apportioned from day to day under the Apportionment Act 1870. That part which relates to the period after the commencement of the administration is payable as an expense. Whether the part that relates to the period before then can be payable as an expense depends on whether In re Silkstone remains good law, something which the Judge thought questionable, but declined to decide.
This decision has important implications, both for the drafting of new leases, and for landlords under existing leases who are asked to agree to the payment of rent monthly. The drafting of leases and agreements permitting the payment of rent monthly should anticipate the situation where the administrator is appointed shortly after a quarter day.