Leisure (Norwich) II Ltd & Ors v Luminar Lava Ignite Ltd

Rent payable in advance which fell due before the commencement of an administration or liquidation is provable in the insolvency but is not payable as an administration or liquidation expense merely because the office-holder retains the premises afterwards.

Conversely, rent payable in advance which falls due while the premises are retained for the purposes of the insolvency procedure is payable in full as an expense, even if the premises are later vacated or forfeiture is permitted before the relevant period ends. Rent payable in arrears is payable as an expense to the extent it accrues during such retention. The court also applied a broad merits-based assessment when determining costs after the substantive forfeiture issue had been resolved.

The landlords sought permission under paragraph 43 of Schedule B1 to the Insolvency Act 1986 to forfeit four leases and sought payment under paragraph 74 of Schedule B1 of rent which had fallen due before the companies entered administration.

The companies operated nightclubs and entered administration on 28 October 2011. The administrators continued trading and refused permission to forfeit while discussions took place concerning assignments to a newly incorporated company. Permission to forfeit was later given, leaving the rent and costs issues for determination.

The central issue was whether rent payable quarterly in advance, which had fallen due before the administrations began, became payable as an administration expense because the administrators retained the properties for the purposes of the administrations.

1. Rent liability. The landlords were not entitled to payment as an administration expense of rent which had accrued due before the administrations commenced. That rent was provable in the administrations but remained subject to the ordinary insolvency distribution rules.
2. Lundy Granite principle. The exception to the ordinary rule applies where an administrator or liquidator retains property for the purposes of the insolvency procedure. The office-holder must then pay as an expense rent which becomes payable during that period. The authorities did not support extending the exception to rent which had already fallen due before the commencement of the administration.
3. Advance rent. The Apportionment Act 1870 has no application to rent payable in advance. Accordingly, the part of an advance payment attributable to the period after the administrators elected to retain the premises was not recoverable as an administration expense where the payment itself had fallen due before the administration.
4. Summary of the applicable rules. Rent payable in advance and falling due before commencement is provable but is not an administration or liquidation expense. Rent payable in advance and falling due during retention is payable in full, even if the office-holder later vacates or permits forfeiture. Rent payable in arrears accruing during retention is payable at least to the extent it accrues day by day during that period. The court left open whether rent in arrears referable to a period before commencement could be recovered under Silkstone.
5. Costs. Applying Brawley v Marczynski (No 2), the court assessed the likely merits of the forfeiture application on a broad basis. The landlords’ proprietary interests carried great weight. The administrators’ refusal to permit forfeiture, while pursuing an uncertain assignment and delaying the landlords’ preferred reletting arrangements, was likely to be regarded as unfair and disproportionate. The administrators were ordered to pay the landlords’ costs of the forfeiture application.
6. Permission to appeal on the rent issue was refused, although time to file an appellant’s notice was extended to 25 April 2012.

This was a first-instance decision of the High Court. No prior appellate decision in the same proceedings was stated.