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Rent as an expense for Companies in Administration during lockdown

As the Government looks to loosen lockdown landlords of commercial premises continue to have uncertainty, especially when it comes to their tenant’s insolvency. With restrictions imposed under the Covid-19 announcements made by the Government in terms of action available to them when rent is unpaid what is the situation when the tenant enters or is already in Administration? and what liability does the Administrator have for rent?

When a company enters administration, the expenses incurred have a priority over unsecured creditors. As such being paid in priority it is usual for the expenses to be paid in full. Landlords benefitted from this where they could claim that the rent due whilst the premises were being used by the Administrator for the benefit of the Administration as is payable as an expense of the Administration.

At the moment during the period of lockdown premises such as shops and cafes etc are standing empty and unused. Stock and equipment remain on those premises. If those companies are in or go into an Administration what will be the status of the rent that falls due?

The landlord may find that they now need to argue that the rent is in fact an expense rather than an unsecured claim. To this extent a lot will depend on the circumstances of the case. At present landlords will need to have a dialogue with the Administrators and the rent is more likely to be an expense if the Administrators are looking to commence trading after lockdown is lifted, looking to sell the business as a going concern from the site, whether the site is being used for storage and therefore prevent the landlord re-letting the premises. In addition the landlord will want to look into how the employees have been dealt with. If they have been furloughed with a view to being brought back after lockdown this would indicate that the premises are being kept on with a view to recommencing trading after lockdown. Other factors to consider are whether any third parties have been given access to the premises by the Administrator under an agreement or whether the Administrator has tried to surrender the lease and return the keys.

In the absence of being able to reach an agreement in these uncertain times Administrators may find that they are forced to get Directions from the Court and Landlords may yet again find their position is now less certain.

If you would like to discuss any concerns you have in relation to insolvency please do not hesitate to contact me on Darren.stone@cognitivelaw.co.uk

Darren Stone