Is rent an expense of an administration?

It seems to be.

In Exeter City Council v Bairstow [2007] EWHC 400 (Ch), the court held that business rates were to be treated as an expense of an administration, whether premises were occupied or unoccupied, and were therefore to be paid by the administrator.

What about rent? In a liquidation, rent can be seen as an expense of the liquidation, payable with priority. In Re Toshoku Finance UK plc [2002] 1 WLR 671, Lord Hoffmann said that: "The court will … interpret rule 4.218 [Insolvency Rules 1986] to include debts which, under the Lundy Granite Co principle, are deemed to be expenses of the liquidation. Ordinarily this means that debts such as rents under a lease will be treated as coming within paragraph (a) [expenses properly chargeable or incurred by the official receiver or the liquidator in preserving, realising or getting in any of the assets of the company], but the principle may possibly enlarge the scope of other paragraphs as well.”

But what about rent as an administration expense? In the recent case of Lomas & Ors v RAB Market Cycles (Master) Fund Ltd & Ors [2009] EWHC 2545 (Ch) Mr Justice Briggs says: “In my judgment that dictum [of Lord Hoffmann] is no less applicable to administration expenses than it is to liquidation expenses, subject to two caveats. The first is that the court habitually deals flexibly with applications for permission by, for example, secured creditors of a company in administration to enforce their security, or by landlords to forfeit a lease of property to the company. In such circumstances it is commonplace for the creditor to be restrained, for the better functioning of the administration, provided that the administrator discharges what would otherwise be unsecured liabilities, as they arise. The imposition by the court of such a condition for the refusal of permission to the creditor to enforce his security or forfeiture could convert a debt which might otherwise not be an administration expense into one that was. Furthermore, under the Lundy Granite principle itself, the retention by administrators of property for the benefit of the administration may mean that liabilities incurred by reason of that retention, although unsecured, become administration expenses.”

Hence, so it seems, rent payable during an administration should be seen as an expense “properly incurred by the administrator in performing his functions in the administration of the company” under rule 2.67.