When a company enters administration, the expenses it has incurred prior to the administration have a different status from the expenses incurred by the administrators. These latter expenses are in effect preferential to the former.
This is important for landlords because it is now common for companies with leased premises to have large liabilities for quarterly rents that fall due on the 'quarter days' and they will often be put into administration when they cannot pay the sums due.
There have been many legal arguments about the status of rental payments falling due around the time a company goes into administration.
Traditionally, the rent was regarded as payable by the occupant for the period of occupancy, but a 2012 case on the issue determined that where the administrator is appointed after the rent falls due, the rent is a pre-administration expense in its entirety. So, if the quarter's rent falls due on the 24th of the month and the administrator is appointed on the 25th, the liability for the whole quarter's rent is a pre-administration liability and not part of the administrator's expenses.
In a recent case in the Court of Appeal, a landlord that stood to lose £3 million in rents following the appointment of administrators to a retail chain the day after the quarterly rents were due argued that the precedent discriminated unfairly against landlords.
The Court agreed, ruling that the administrators must pay rent for any periods during which they retain possession of the let premises 'for the purposes of the administration'. The same would apply to premises occupied by liquidators if a company enters liquidation.
In effect, the decision means that the liability for the rent passes to the administrator on a day-to-day basis from the date of the appointment.
Given the sum involved, an appeal to the Supreme Court is possible, although the Court of Appeal judges were unanimous in their ruling.