Rent payments and administration expenses

Cutbacks iStock 000013353612XSmall 146x219The Court of Appeal has altered its approach to rent being payable as an administration expense. Naomi Chesterman reports.

On 24 February 2014 the Court of Appeal gave their judgement in Pillar Denton Ltd & Ors v Jervis & Ors [2014] EWCA Civ 180, changing the court's approach to the question of whether rent is payable as an administration expense.

Lord Justice Lewison set out the issue clearly in his judgement:

"The issue on this appeal is the treatment of rent payable under a lease held by a corporate tenant that enters administration.  When is the rent no more than a provable debt; and when does it rank as an expense of the administration."

In the case, the rent payable by the tenant was to be paid quarterly in advance and the quarterly rent in question became due on 25 March 2012. The tenant failed to pay the March quarter rent. On 26 March 2012 the tenant went into administration.

So was the March rent, having been incurred before the administration, an administration expense or a provable debt?

The case law pre-Pillar Denton Ltd

LJ Lewison spoke in length about the legal background to this issue, in particular, the recent cases of Goldacre and Luminar which had, until now, directed the court's approach.

In Goldacre (Offices) Ltd v Nortel Networks UK Ltd [2009] EWHC 3389 (Ch), HH Judge Purle QC held that where a quarter's rent payable in advance falls due during a period of administration, and the property is retained by the administrators, the whole quarter's rent is payable as an administration expense.

Subsequently, in Leisure (Norwich) II Ltd v Luminar Lava Ignite Ltd [2012] EWHC 951 (Ch), HH Judge Pelling QC held that where a quarter's rent payable in advance falls due before a period of administration, the rent is not an administration expense but is merely a provable debt, even if the administrators retain the property for the purposes of the administration.

Pillar Denton Ltd & Ors v Jervis & Ors [2014] EWCA Civ 180

At first instance in Pillar Denton, Deputy Judge Lavender QC followed the decisions in Goldacre and Luminar but allowed the parties permission to appeal.

LJ Lewison considered the 'Lundy Granite' and 'Salvage' principles but disagreed with the decisions in Goldacre and Luminar. He did not agree with the notion that a full quarter's rent should be payable just because a rent day occurred immediately before entry into the administration. Equally, he did not think a landlord should be paid a full quarter's rent where the tenant has already vacated.

Goldacre and Luminar were therefore overruled on the basis that "the foundation of the [salvage] principle is the application of equity".

LJ Lewison then laid out the following set of rules to be applied:

  • The Administrator must make payments to the Landlord at the rate of the rent for the duration of any period during which he retains possession of the demised premises for the benefit of the winding up or administration.
  • The rent will be treated as accruing from day to day.
  • Payments are payable as administration/winding up expenses.
  • 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.

The case will surely be welcomed by landlords who have been prejudiced by a significant period of tenant insolvencies. It also marks an interesting confirmation of the court's attitude in allowing equity to step in and assist in the application of previously established principles.

Naomi Chesterman is a senior associate at Veale Wasbrough Vizards. She can be contacted on 0117 314 5481 or This email address is being protected from spambots. You need JavaScript enabled to view it..