A recent ruling in a landmark case involving insolvency had landlords rejoicing. They thought they had one the right to be paid first, ahead of other creditors when a tenant (usually a retailer) became insolvent.
The judge in the case ruled that rent in on all properties leased should be treated as part of the administration of the insolvency and as such paid first. The insolvency practitioner would have to honour the existing landlord contract.
No sooner was the ruling out f the judge’s mouth though than business advisors found a way around it.
Basically it is all about the timing. Without getting too complicated the idea is that the upcoming quarter of rent is due as part of admin costs if the insolvency procedure starts before the quarter does. If the director of the business decides to wait until the quarter has begun then they can effectively gain nearly three months of free rent.
On the question of whether this is entirely legal and leading expert had this to say.
“The directors will have to satisfy themselves to do that. If they believe insolvency is pretty likely they may feel a duty to creditors that if they wait they won’t have this big administrator expense which has to be paid ahead of other creditors,”
Looks like landlords may have rejoiced too early though the ruling will probably have some positive effects.
