Administration could get tougher after rent ruling
Legal experts believe that the closing of a loophole which had allowed failed store chains to avoid paying rent for three months could lead to administrations becoming “more kill than cure”.
Last week’s Court of Appeal ruling saw some of the UK’s biggest landlords win a two-year battle to overturn the law on payment of rent during periods of administration.
Companies that could have avoided making payments for three months if administrators were appointed shortly after the quarterly rent day will now have to stump up rent on a “pay as you use” basis.
The previous savings, often running into millions of pounds, provided a buffer for the rest of the business while restructuring took place.
Lawyers said the case, which involved computer entertainment retailer Game and a consortium of property heavyweights including British Land and Land Securities, would have a major impact on how landlords deal with insolvent retailers across the UK, as the ruling will be followed north of the Border.
Darina Kerr, a partner at law firm Dundas & Wilson, described the ruling as a “significant victory for some of the country’s biggest landlords”.
She said: “Some retailers, such as Game and HMV, have managed to survive despite well-publicised financial problems. Administration gives retailers a chance to restore financial health. But, for landlords, administration can lead to financial problems by allowing rent to remain unpaid which means they miss out on their expected income.
“But while landlords celebrate, store staff and suppliers may suffer as, in future, administrators may seek earlier cost savings in order to pay landlords’ bills. The administrator may opt to move quicker to close stores and axe jobs”.
Game, which was owing some £3 million in rent, is considering an appeal to the Supreme Court.