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A poisoned chalice for landlords

wantspacegotspace.co.uk - A poisoned chalice for landlordsLandlords may have celebrated following the Goldacre ruling in 2009 but recent events have left a very bitter taste in their mouths says commercial property agent Prop-Search, as a rising number of high street brands have gone into administration.

The decision by the court in the Goldacre (Offices) Limited v Nortel UK Limited (in administration) case had significant implications because administrators could no longer calculate rent on a daily basis and had to pay for a full quarter.  Landlords were delighted with the outcome as they received the whole quarter’s rent in advance, which could potentially compensate them for losses incurred if the administrators vacated and left a void period.

However, the ruling created a degree of uncertainly that where an administrator is appointed after a rent payment date, which was subsequently not paid, then the outstanding rent becomes an unsecured claim.  

Samantha Jones, an Agency Surveyor at Prop-Search says: “The lack of clarity has recently caused big problems for landlords who were dealt a further blow after the High Court enforced the Goldacre ruling and declared that rent which falls due before a company collapses should not be classed as an administration expense, even if the administrators continue to use the property during the rent period.”  

“Over the last year, as the economic downturn has bitten and more and more businesses have entered into administration, landlords have been left increasingly frustrated and out of pocket.”

An example of the heightening problem is highlighted by the retailer Game, which went into administration on 26th March 2012, the day after the quarter’s rent was due.  The landlord had no chance of receiving any payment for that quarter and was not be able to recover possession of the properties while the administration was in effect.

Samantha adds: “Initially, the Goldacre case appeared to give some formality and uniformity to the rules surrounding payment of rent by administrators.  However, the decision and subsequent High Court ruling has, in fact, created a win/lose situation where one party ends up out of pocket, which seems inequitable, and so we have landed up in a position that neither the landlord nor administrator necessarily wants.”

The current situation has, in the majority of cases, given administrators acting for tenants the upper hand, which has served only to frustrate relationships between the two parties.  The relationship has soured further because the ruling has led to the emergence of tactical games - as appointing an administrator is often timed to the day after the rent is due to avoid payment for that quarter.

Samantha concludes: “There needs to be some stringent guidelines in place as a fall-back for when communications between landlord and administrators fail, but the current situation needs to be changed.  A pay-as-you-go approach to rents may be the answer.  However, greater co-operation, negotiation and the return to common sense practices is probably a better way forward.”

Posted by The Editor (wantspacegotspace) on 8th July 2013 (updated 13/07/2013)

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