25 February 2014

Landlords will be relieved that the Court of Appeal has closed a legal loophole in a test case arising out of the administration of the Game group of Companies – Pillar Denton Ltd & 5 others v (1) Jervis (2) Maddison (3) Game Retail Ltd [2014] EWCA Civ 180.

Because of previous court decisions that part of an instalment of rent payable in advance cannot be treated as an expense of the administration but is simply provable as a debt in the administration, it has become common practice for companies to enter administration on the day immediately after a quarter day, to avoid liability to pay the rent for that quarter even if they continue occupying the property. Administration is often followed by a swift sale of the business to a new company that can, in effect, trade rent-free out of the premises for the first three months, to the understandable irritation of its landlords. Game adopted this practice. It was the tenant of hundreds of leased retail properties, for most of which rent was payable quarterly in advance on the usual quarter days.

On 25 March 2012, around £10 million in rent became due under the various leases. It was not paid and the group entered administration the next day. Some stores closed down immediately but other stores were included in the sale of the business and assets of the group and continued trading. The landlords' claim for the March quarter’s rent was referred to the Court of Appeal which decided that rent is due as an expense of the administration for any period during which the leased premises are occupied for the benefit of the winding up or administration (as the case may be). The rent will be treated as accruing from day to day. So no payment is due to the landlord for the period after the premises are vacated following administration or winding up but payment for the whole quarter is not dependent on whether a company went into liquidation or administration just before or just after a rent payment day.

Game and its legal advisors are considering an appeal to the Supreme Court – as indeed the landlords stated they would have if the decision had gone the other way – so the game may not be over just yet.

For more in-depth coverage, please see our briefing 'Goldacre overruled – rent to be paid as an expense pro rata'.

Key contact

Colin Ligman

Colin Ligman Partner

  • Real Estate
  • Banking and Finance
  • Corporate Restructuring and Insolvency

Subscribe to news and insight

Burges Salmon careers

We work hard to make sure Burges Salmon is a great place to work.
Find out more