Landlords win Game case

Landlords win Game case

A group of the country’s biggest landlords have won a ground breaking test case to overturn the law on payment of rent during administrations.

British Land, Intu, Hammerson and Land Securities have set a legal precedent that will enable them to recover around £3m of unpaid rent suffered from the collapse of retailer Game.

From now on, rent will be due on a pay-as-you-go basis in the same way utilities are, dependent on the circumstances of each administration.

The Court of Appeal ruled this morning in a landmark challenge of a law the claimants argued was stacked unfairly in the tenants’ favour. However Game is expected to appeal the decision to the Supreme Court.

Under the previous law, rent that becomes due during an administration is payable as an administration expense if the business continues to use the premises.

But a legal loophole serves to aid struggling businesses. Most leases require rent to be paid quarterly in advance. However, if a business files a notice of intention to appoint administrators before the “quarter day” when rents are due, and completes the appointment within the subsequent 10 days, the administrator escapes liability and the business wins a rent-free period.

This is what happened with Game, which served the notice shortly before the 26 March 2012 quarter day. Its landlords faced the loss of three months’ rent and have spent the past two years mounting a case to challenge the law.

Following their sensational win, administrators will also have new certainty of the rental liabilities they will be required to pay if they make use of leased properties.

Hammerson said the judgement is beneficial to both parties as it completely removes the issue of the rent due date.

“They now know they will have to pay, or be paid, the full rent for the property for the period it is used for the benefit of the insolvency – no more and no less,”

“The previous system was deeply unsatisfactory for both landlords and insolvency practitioners and this judgement provides a workable, common sense resolution to the payment of rent as an administration expense.

“The ruling will significantly change the relationship between landlords and insolvency practitioners, and hopefully lead to more collaboration when dealing with critical situations.

“Corporate restructuring will now be focused purely on trading patterns and the viability of the ongoing business, rather than on rent-free periods from landlords provided by a legal loophole.”

Berwin Leighton Paisner, which acted for the landlords, said: “This decision is a landmark one and should bring welcome clarity to what has become a contentious area of law in recent years.

“The landlord community will welcome the decision, knowing they will receive payment for the use of their property by companies in administration.”

Game said in a statement: “The Court of Appeal’s decision in this important test case for the property and retail markets fundamentally changes the law in relation to the payment of rent in an insolvency context.

“There were important principles at stake for commercial landlords, retail tenants and, indeed, any company with property assets.

“Game’s exposure following this decision is limited to a one-off liability of £3m which has already been accounted for. The real ramification of this decision is, however, that it will have a significant financial impact on all landlords, tenants and insolvency practitioners involved in current and future business insolvencies in this country.

“Game strongly argued against the law being changed on legal and commercial grounds and is now considering the possibility of an appeal to the Supreme Court.”