Recovery of rent for Landlords

This is my first blog post. I am a recent LPC graduate with an interest in Commercial Property law. I have started this blog in order to give Commercial Property law enthusiasts (yes they do exist!) the lowdown on the latest law.

My first post concerns a proverbial bogey man for your average Commercial Landlord- the recovery of rent once administrators have been appointed (not very flashy- but still...).

This is topical when you consider the recent troubles on the high street- HMV, Jessops, Blockbusters...whose next? With the economy heading towards a triple dip (touch wood), and consumer spending remaining muted, the ugly spectre of Insolvency will continue to rear its ugly head for many retailers.

The problem for Landlords lie with two cases- Goldacre v Nortel (Goldacre) and X Leisure v Luminar (X Leisure). Goldacre established the basic principle that rent must be treated as a 'priority expense' if the administrator continues to trade from the premises once the business has been put into administration. This means that the administrators must put the Landlord's rent claims before anything else- including their own remuneration.

Fine- all well and good. But what about rent arrears that occur before administration?

This point was answered in X Leisure. In this case, it was established that rent arrears prior to an administration were not to be treated as a priority expense. Therefore, the Landlord must get in line with the other unsecured creditors and be grateful for their meagre share (if indeed they get anything!).

The upshot is that most administrators will now be appointed after the quarterly rent day and receive the benefit of a rent free period. In short- the Landlord loses out!

As stated above, the economy looks set for another nosedive. The practical effects of Goldacre and X Leisure will continue to result in restless nights for Landlords.

The solution- it's hard to say until another case comes along and Goldacre and X Leisure are blown out of the water (wishful thinking!).

Some have argued that the payment of rent should fall on a 'pay as you go' basis and that there should be more co-operation between Landlords and administrators. If a Property is particularly (or has the potential to be) lucrative then the Landlord could grant the administrator a rent free period in return for payment of the last quarter's rent. A bit of quid pro quo so to speak. At the moment, the Landlord seems to lose everything but the shirt on his/her back. A bit of co-operation between the two parties wouldn't go amiss.

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