MK Airlines v Katz- recovery of rent

My very first post on this blog covered the decisions in Goldacre v Nortel and X Leisure v Luminar. Both cases established that rent accruing during an administration (where the premises were being used for the benefit of the creditors) was to be treated as a 'priority expense' of the administration. This did not apply to rent that accrued prior to the administrators being appointed.

The 2012 case of MK Airlines v Katz (MK) follows these cases. MK concerned the administration of a company and the appointment of provisional liquidators. The provisional liquidators initially used the premises to store the company's assets. It was held that rent was not to be treated as a priority expense during this period. However, once the premises started to be used for the benefit of the liquidators, the payment of rent was to be treated as a liquidation expense. So once the premises started to change use (and thus be of benefit to the liquidators) then the rent was treated as a priority expense.

The conclusion? Landlords should get into contact with the liquidators, as soon as they are appointed, and try to ascertain what use the liquidators will put the premises to. If the liquidators just intend to use the property for storage then rent will not be a liquidation expense. If the liquidators gain from the use of the property then the rent will be a liquidation expense. Landlords- get in touch and talk with the liquidators as soon as they are appointed. This will save both time and money!

Goldacre, X Leisure and MK make one thing clear- Tenants could well have the upper hand in Lease negotiations by insisting on the payment of monthly as opposed to quarterly rents. This will benefit the Landlord too. If a business is put into administration, shortly after a quarterly rent day, the Landlord will have to wait a month for their rent instead of waiting until the next quarter. Monthly rents may also help with Tenant's cashflow- many of whom struggle with quarterly rents (and have demanded an end to this archaic practice). Property Lawyers are well advised to suggest monthly rents to their Landlord/ Tenant clients. Monthly rents may help to alleviate the problems caused by Goldacre etc.

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