The High Court has held that if T is in administration, and the company continues to use the premises, then the rent due to L must be paid as an expense of the administration. Thus, rent will rank ahead of sums due to preferential and other unsecured creditors.

According to the High Court, if an administrator causes the company to ‘use’ the leasehold property for the benefit of creditors, then the administrator must automatically pay the rent due under the lease as an expense of the administration. There is no element of discretion, and there is no suggestion of having to balance the interests of creditors against the interests of L (as would apply when L wants to take action against a T in administration). As a note from practicallaw.com points out, the concept of ‘use’ is a wide one, and will almost certainly include allowing a purchaser of the business, and assets of the insolvent company, into occupation of the premises under a licence to occupy.

It is worth noting that this does not mean an end to companies in administration being able to occupy premises for a time without paying rent. What it does do, however, is establish the priority of the liability of the company to pay rent (ie ahead of preferential and other unsecured creditors). But, it does not oblige the administrator to pay the rent immediately, if the administrator does not have sufficient funds to do so. However, it means that prospective administrators, when considering the strategy for the administration of the insolvent company, must make suitable arrangements to meet the company’s rent liabilities. Goldacre v Nortel [2009] EWHC 3389 (Ch) (access free at www.practicalconveyancing.co.uk). Source: www.practicallaw.com (subscription service).