A helpful case for Landlords where Tenants go into Administration

In Goldacre (Offices) Limited v Nortel Networks UK Limited (in administration) [2009] EWHC 3389 (Ch) (“Goldacre”) the administrators of Nortel Networks UK Limited (“Nortel”) had used part of the property since the date of the administration for the more efficient conduct of the administration.

Goldacre (Offices) Limited applied to the High Court for an order directing that the administrators were to pay rent under the lease as an expense of Nortel’s administration.
It was held that if a tenant goes into administration and the administrator causes the company to use the leasehold property for the benefit of creditors, the administrator must automatically pay the rent that falls due under the lease as an expense of the administration, whether or not the landlord seeks payment.

So what are administration expenses?

Where a company in administration incurs liabilities to third parties, the Insolvency Rules 1986 determine that some of these liabilities should be paid by the administrator out of the assets of the insolvent company before preferential creditors, floating charge holders and unsecured creditors are paid.

However, landlords should bear in mind the following:

• Arrears of rent accruing prior to the date of administration are still likely to rank as an unsecured claim

• the administrators may argue that they need only pay rent as an administration expense for the period they are actually using the property

• the administrator is to pay the full rent that falls due under the lease and cannot apportion the rent if the company uses only part of the premises

• companies in administration can still occupy the premises for a time without paying rent – the case determines the priority of payment of rent and does not oblige the administrator to pay the rent immediately upon it falling due if the administrator does not have sufficient funds to do so.

It is likely that the Goldacre case will also apply to a scenario where the company in administration grants to a purchaser of its business and assets a licence to occupy the premises.

Ian Liddle
Partner, Farleys