Company in Administration – Rent must be treated as administration expense

In a recent decision which will be welcomed by commercial landlords, the High Court has confirmed that if an administrator of a company wants to use leasehold property for the benefit of creditors, he or she must automatically pay the rent under the lease as an expense of the administration, whether or not the landlord seeks payment.

In Goldacre (Offices) Ltd. v. Nortel Networks UK Ltd. (in administration), Nortel was the tenant under a long lease granted by Goldacre. However, Nortel’s administrators only needed to occupy a small part of the premises to enable them to carry out their duties. Goldacre applied to the High Court for an order directing the administrators to pay the whole of the rent payable under the lease as an expense of the administration. The administrators sought to argue that the rent should only rank as an administration to the extent to which the company used the premises for the benefit of the creditors generally. In other words, they should only be liable for part of the rent. The Court rejected this argument.

This case clearly strengthens the hand of a landlord faced with a tenant that has gone into administration. It means that if the administrator decides that he wants to continue to use the premises for the company’s business, the landlord will almost certainly receive the rent at some point and will not be relegated to the status of an unsecured creditor. However, it does not mean that an administrator will be obliged to pay the rent when it falls due if he lacks the funds to do so.

If you would like to know more about the implications of this case, please contact Caroline Wilton or Martin Banham-Hall.

Filed: 24/01/2010 22:52:04