Another quarter (rent) day has passed for commercial property landlords and reports have emerged of another batch of well known names on the High Street in, or on the brink of, administration (Dwell, Internacionale, Model Zone and Ark for example). Yet BDO, in their Business Trends report, say that business confidence in the UK has reached a 13 month high. Is there a mismatch between the high street and business generally or is this evidence of another problem? A clue may be found in a recent survey of the views of UK retail sector executives carried out by Ernst & Young. Nearly 60% of respondents pointed towards property costs such as rent and rates as imposing the heaviest burden. Other responses led to Julie Carlyle (partner and head of UK retail at Ernst & Young) saying "Those that are struggling have been unable to keep pace with rapid change of technology and consumer behaviour".
Against this background a practical issue of real concern to Landlords arises when a tenant, particularly one which may occupy a number of shops in a portfolio, goes into administration and which highlights the conflict between the interests of the landlord and the administrators. The landlord understandably does not want his property occupied by a tenant in administration and which is not paying the rent. The administrators on the other hand are looking to find a way of keeping the business alive and very often the chance to avoid those high property costs even for a quarter, may be the difference between success and failure.
When a tenant company enters administration, it is shielded from creditors who may not pursue any legal process against the company without the permission of the court or the consent of the administrators. The administrators, as agents of the company, have no general liability to pay the company's debts. Debts which have arisen at the date of administration are often therefore irrecoverable. However, debts which arise during the administration may be payable as an expense of the administration if they fall within a limited range of statutory categories. In Goldacre (Offices) Ltd v Nortel Networks UK Ltd (in administration) [2009] EWHC 3389 the court confirmed that rent would be payable as an expense so long as the administrators retain or use the premises for the benefit of the administration.
