A consortium of landlords has won a landmark case against electronics and gaming retailer Game Station Ltd (trading as GAME) today (24 February).
Landlords including Land Securities, Hammerson and British Land appealed against GAME after the retailer operated rent-free while it was in administration last year.
The ruling, which will see GAME pay out £3m in rent, will have a significant impact on the insolvency industry, as well as the already embattled retail sector.
Under existing insolvency law, administrators can legally trade business in administration from the rented premises for as long as three months, protected from landlord enforcement action.
The outcome of the Jervis v Pillar Denton Ltd and others (2013) case will now see that rent for any period of occupation during an administration will form part of administration expenses.
Presiding over the case, Lord Justice Lewson said: “The true extent of the principle is that the office holder must make payments at the rate of the rent for the duration of any period during which he retains possession of the demised property 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. Those payments are payable as expenses of the winding up or administration.
“The duration of the period is a question of fact and is not determined merely by reference to which rent days occur before, during or after that period.”
Insolvency practitioners at KPMG have welcomed the ruling, but say the verdict is not a pivotal moment in the insolvency industry.
Brian Green, restructuring partner at KPMG, said: “Today’s judgement sees common sense prevail. While not necessarily a game-changer for the insolvency profession, it is the welcome correction of an anomaly which stretches back over many years.
“The new ruling, which creates the possibility of a ‘pay as you trade’ scenario, not only paves the way for greater collaboration between insolvency practitioners and landlords, but crucially, will also allow administrators to better plan and maximise the value of the business for creditors, irrespective of the date of appointment.
“It’s good news for landlords. It’s good news for workers and it’s good news for creditors.”
Peter Saville, partner at Zolfo Cooper, welcomes the the return to paying rent on a “pay for what you use basis”.
Saville said: “It preserves a fair balance between different creditor and expense groups – it supports the administrator’s aim of acting in the best interests of everyone involved.
“The Goldacre/Luminar way of deciding on the treatment of rent was based on an arbitrary timing of quarter days. This brought uncertainty to all stakeholder groups and as a consequence did not support the rescue culture.”