Case has settled bone of contention; WHO'S PLANNING WHAT? RICHARD FREEMAN-WALLACE.
Byline: RICHARD FREEMAN-WALLACELAST year I wrote an article on the case of Innovate Logistics Ltd (in administration) v Sunberry Properties Ltd, in which the Court of Appeal decided to permit a short-term licence granted by a tenant in administration to stand, despite the fact that the administrator of the tenant did not obtain the written consent of the landlord before doing so, as required by the lease.
The court heard that that the short term licence was part of a pre-pack administration agreement, which involved early agreement of the sale of the tenant's business as a going concern (not including debts).
Temporary occupation meant that the buyer continued to pay rent and the assets of the tenant could be increased for distribution to creditors. Without a short-term licence, it was argued that Innovate would have been liquidated and creditors would have suffered. There were book debts of pounds 9m.
The court took the view that the licence benefited the landlord by securing rent for a further six months, particularly as the rent under the lease was higher than the current rental value.
The High Court has heard another case involving administrators of a tenant and the rent due under leases held by that tenant.
In this case, the question was whether rent, which became due under leases during the administration, was to be treated an an expense of the administration (and therefore a liability of the administration) or not. From the landlord's perspective, the question was, 'Can I charge and be paid rent during an administration?' The question is an important one as there are complex rules which govern what expenses administrators can incur without becoming personally liable for them.
A moratorium is imposed on a company's affairs when it goes into administration.
This means that the court or the administrator has to give permission for the landlord to instigate any legal proceedings against the tenant, such as for the recovery of rent.
It appears that rent is now confirmed as an expense of the administration. This, however, is on the basis that the administrator causes the tenant to use the property for the benefit of creditors.
This would happen where the administrator is continuing to trade the business of the insolvent tenant from the leasehold premises, but not in the case of excess property which the business no longer needs.
The principal that rent is an expense should also extend to other costs of occupation such as insurance and service charges.
This latest case is welcome news to landlords and administrators alike as it settles another a bone of contention between them.
Richard Freeman-Wallace is head of property at Watson Burton, Newcastle
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| Title Annotation: | Business |
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| Publication: | The Journal (Newcastle, England) |
| Date: | Jan 27, 2010 |
| Words: | 444 |
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