By Roy Roxburgh, Consultant, MMS Corporate Department. Roy is Convenor of the Law Society of Scotland's Insolvency Committee and a member of R3's Scottish Technical Committee.
The High Court in England handed down its decision in the case of Goldacre (Offices) Limited v Nortel Networks UK Limited (in administration) (2009) EWHC 3389 (Ch) on 7 December 2009.
In simple terms the Court were asked to decide how to rank a landlord's claim for rent and other sums due under a lease where the tenant had gone into administration.
The tenant (through the administrator) claimed that it was not using all the subjects covered by the lease and had greater objectives in wishing to remain in occupation of part only of the leased subjects. The landlord claimed that they could not use the parts of the property the tenant did not want and were therefore providing the whole subjects of let (as per the lease) to the tenant and to their detriment.
The Court considered the historic authorities relating to liquidations where the liquidator sought to trade from the premises and concluded that the position in an administration was the same, namely that if the tenant in administration used the premises that the whole obligations under the lease for the period of the insolvency practitioner's occupation were an expense of the administration in respect of the period covered by the administration.
The Court specifically considered whether the tenant (i.e. the administrator) could argue a quantum meruit case, namely that the rent was excessive in the market conditions and that a lower sum should be paid, and dismissed that. The Court also decided that if the rent was payable in advance for a period of say six months and the due date fell while the administrator was in occupation, and the administrator only wanted to stay in for three months, that he would have to pay for the six month period as that was the contractual obligation. The Court's decision restricts the earlier decision in Sunberry Properties Limited v Innovate Logistics Limited (2009) 1 BCLC 145, which was a good case for administrators, since it was suggested in Sunberry that the Court has a discretion to decide whether rent should be treated as an expense of the administration.
Accordingly, Goldacre is a case heavily in favour of landlords, and any insolvency practitioner will need to tread carefully when deciding what to do with leases of property and carefully consider his options at a very early stage.
Although an English case, the appropriate wording of the Insolvency Rules is the same in Scotland and there is no reason why the decision would not be followed north of the border.
Click here for the full judgement.
For further information relating to this article, please contact Roy Roxburgh, Michael Hughes, Gordon Aitken or your usual contact at MMS.
01224 356 171
0131 228 7169
0141 303 2339
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