In the traditional landscape of commercial landlord and tenant law, a tenant entering administration once triggered a “winner takes all” scenario based purely on the calendar. For decades, the timing of an insolvency appointment relative to the “Quarter Day” determined whether a landlord received full payment or nothing at all. However, modern case law and the Insolvency Act 1986 have shifted the landscape toward a more equitable, “pay-as-you-go” model that protects the landlord’s right to be paid for the use of their asset.
1. The 2014 “Game Changer”: Jervis v Pillar Denton Ltd
The most significant shift in modern commercial property law came from the 2014 Court of Appeal ruling in Jervis v Pillar Denton Ltd, commonly known as the Game Station case. Before this landmark decision, the industry operated under the “all or nothing” precedents of Goldacre and Luminar.
Under those old rules, if a tenant entered administration just one day after a quarter day (when rent was due in advance), the entire three months of rent was classified as a “pre-administration” debt. This meant the administrator could legally trade from the premises for the remainder of the quarter without paying a single penny in rent, as the debt was considered a low-priority unsecured claim.
The 2014 Game Station ruling dismantled this “rent trap.” The Court of Appeal established three revolutionary pillars for commercial landlord and tenant relations:
- · Daily Accrual: Rent is now treated as accruing day-to-day for the specific period that an administrator actually uses the property.
- Expense Status: Any rent incurred during this period of use is elevated to an “administration expense.” This is a high-priority status, meaning the landlord must be paid ahead of the administrator’s own fees and ahead of payments to floating charge holders.
- The End of Tactical Timing: Administrators can no longer time their appointment to “steal” a rent-free quarter. If they use the shop, office, or warehouse to sell stock or trade the business, they must pay for that privilege on a pro-rata basis.
2. Defining “Use”: When is the administrator ‘using’ the property
A critical point of contention in commercial landlord and tenant insolvency cases can sometimes arise around the issue of defining exactly what constitutes “use” by an administrator. This determines whether rent is a priority expense or a potentially worthless unsecured debt.
Because the Lundy Granite principle dictates that rent is only an expense if the property is used for the benefit of the administration, the courts have had to draw fine lines which are broadly summarised below:
- Active Trading: If the administrator keeps the doors open, employs staff, and sells products, this is likely to be considered indisputable “use.” The rent must be paid in full for every day the till is ringing.
- Storage of Assets: Even if the business is “closed” to the public, using the premises to store plant, machinery, or unsold stock constitutes a benefit to the creditors. By not moving the stock to a commercial warehouse, the administrator is saving the estate money at the landlord’s expense. Therefore, this is likley to amount to “use.”
- The “Holding Pattern”: This is a potentially grey area. If an administrator is simply holding the keys while they decide whether to disclaim the lease or sell it to a third party—but the building is physically empty—they may argue they aren’t “using” it. However, if they are actively marketing the lease as a valuable asset of the company, the landlord can argue that this “retention for sale” is a form of beneficial use.
- Environmental or Regulatory Necessity: If the administrator must remain in possession to comply with insurance requirements or environmental permits (common in industrial tenancies), this could potentially qualify as “use.”
3. Lifting the Moratorium: Regaining Control
When a commercial tenant enters administration, a “statutory moratorium” automatically descends. This is a legal “force field” that prevents landlords from taking standard enforcement actions, such as forfeiture (changing the locks) or Commercial Rent Arrears Recovery (CRAR).
To break through this, a landlord must apply to the court for permission to lift the moratorium. This is a high-stakes legal maneuver where the court performs a “balancing act” between the needs of the failing business and the rights of the property owner. The court typically looks at:
- The Purpose of Administration: If the administrator can prove that keeping the landlord out is essential to saving jobs or selling the company as a going concern, the court may maintain the moratorium.
- Loss to the Landlord: If the landlord can show that the moratorium is causing “disproportionate loss”—for example, if they have a new tenant ready to sign a lease at a higher rent—the court is more likely to grant permission to forfeit.
- Failure to Pay Expenses: Crucially, if an administrator is using the premises under the Game Station rules but failing to pay the “pay-as-you-go” rent, the court will be more likley to lift the moratorium. The law does not allow an administrator to use a landlord’s property for free while building up a pot of cash for other creditors.
4. Strategic Reality for Landlords
Navigating these niche aspects of insolvency requires immediate action. A landlord cannot afford to wait for the next quarter day. They must demand an immediate “admission of use” from the administrator and, if payment is not forthcoming, move quickly to lift the moratorium. By understanding the interplay between the Insolvency Act and the Game Station precedent, landlords can transform a “bad debt” into a priority payment.
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David Burns, Senior Litigation Partner at Ronald Fletcher Baker LLP, has extensive experience handling issues related to commercial tenants who have breached the terms of their lease. For inquiries on this topic, please contact David Burns via email at D.Burns@rfblegal.co.uk or by phone at 0207 467 5751.
David Burns
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