Pre-Administration Rents Not Expenses of Administration

30th August, 2012

When a tenant becomes insolvent and the administrator intends to carry on trading from the rented premises, the administrator takes over responsibility for the payment of rent to the landlord from the commencement of the administration.

Typically in such cases, rent arrears have built up and this can lead to arguments over whether payments made by the administrator relate to the ‘post-administration’ period or the ‘pre-administration’ period. The difference is important for landlords, because ‘administration rents’ (i.e. those for which the administrator is responsible) must be paid before other debts.

In a recent case, an administrator and a landlord went to court regarding rent arrears built up by the insolvent tenant. The administrator was appointed just after the normal quarter day rent was due. The landlord argued that the arrears of rent arising before the appointment of the administrator were ‘administration rents’ and therefore stood at the ‘head of the queue’ for payment.

The administrator’s argument was that the arrears were not administration expenses and therefore ranked equally with amounts owing to other creditors of the insolvent company.

The administrator was successful.

“With trading conditions still tough, landlords need to be extremely careful and vigilant over the payment of rents by tenants in difficulties,” comments Giles Williams. “Ongoing review of the payment position is key to minimise potential loss and future dispute.”

Contact Giles Williams on any Commercial Property matters at [email protected]

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