In Goldacre (Offices) Ltd v Nortel Networks UK Ltd [2009] EWHC 3389 (Ch); [2010] 1 EGLR 25 the High Court decided that, if a quarter’s rent payable in advance fell due during a period in which administrators were retaining property for the purposes of the administration, the whole of the quarter’s rent was payable as an administration expense even if the administrator were to give up occupation later in the same quarter. On the flip side of the coin, if such rent fell due before a company was placed in administration, none of it was payable as an administration expense: Leisure (Norwich) II Ltd v Luminar Lava Ignite Ltd [2012] EWHC 951 (Ch); [2013] 3 WLR 1132.
The decisions were based on the rule that rents payable in advance are not apportionable at common law or under the Apportionment Act 1870. They were blamed for a series of subsequent carefully timed appointments, which left landlords to claim for pre–administration rents alongside other unsecured creditors even though administrators were using premises for the purposes of an administration.
Unsurprisingly, landlords were not happy to be placed in this position. Consequently, they will be delighted by the latest ruling in Jervis v Pillar Denton Ltd [2014] EWCA Civ 180; [2014] PLSCS 62. The litigation concerned leasehold properties occupied by the Game group, which collapsed into administration on the day after a quarter day leaving approximately £10m in rent due under various leases.
The Court of Appeal decided that the rents fell within the principle variously known as the “salvation principle”, the “liquidation expenses principle”, or the “Lundy Granite principle”. The principle evolved under the law of equity and enables the courts to treat liabilities as an expense of a liquidation or administration, even though they have fallen due under a pre-existing contract, if they relate to property being used for the purposes of the liquidation or administration.
The court could not see why the fact that rent payable in advance is not apportionable under the Apportionment Act 1870 led to the conclusion that the salvage principle did not apply. The principle was not expressed by reference to when rent falls due; it was framed by reference to the period during which a company uses a landlord’s property to its own advantage.
Common sense and ordinary justice required the court to see that the landlord was paid the full value of the property for that period at the rental rate reserved by the lease. The rent was to be treated as accruing from day to day and the duration of the period in question was a matter of fact; it was not to be determined merely by reference to which rent days occurred before, during or after that period.
The decision leaves administrators liable to “pay rents as they go”; a victory for the rule of justice over the common law rules regarding apportionment of rent, which are equally notorious for the injustice that they cause when a tenant breaks a lease. All eyes will now be firmly fixed on the battles ahead to secure justice in that context too.
Allyson Colby is a property law consultant
