21 June 2018: Company Voluntary Arrangements (CVAs) have never been far from the front pages so far this year with a number of well-known High Street names using the procedure to reorganise their financial affairs. New Look, House of Fraser, Carluccio’s, Jamie’s Italian, Mothercare, Carpetright and Byron Burger have or plan to use CVAs to free themselves from unprofitable sites and significantly reduce rents at others. In order to preserve these companies as going concerns, landlords are being asked to reduce rents or accept a significant write off, often whilst other creditors are being paid in full.
But are landlords starting to bite back? For example, the landlords in the House of Fraser case have appointed property agents to represent them collectively in negotiations to improve their bargaining position. Interestingly, even companies which are not seeking a CVA are getting organised. Next recently announced that it would be insisting on a “CVA clause” when it renegotiates leases, which says that Next’s rent should fall by a similar amount if one of its neighbours in a shopping centre achieves a rent reduction through a CVA. Next believes that CVAs give an unfair advantage to competitors by allowing them to sever leases while those companies not seeking a CVA are forced to honour expensive commitments.
This puts landlords in a difficult situation as on the one hand they might be asked to accept a rent reduction in the context a CVA in order to retain a tenant going forwards but on the other their acceptance of that might result in one of their other “non-CVA” tenants demanding the same reduction.
It will be interesting to see how the relationship between High Street companies and their landlords develops. Often, a landlord’s consent is key to a successful CVA and without a CVA the insolvent company is likely to enter administration or liquidation. With the failure of BHS and other high profile administrations in recent months and the tough retail economy generally, difficult times for the High Street are certainly not over yet.
Should you feel that you or one of your clients might benefit from a discussion with us on any insolvency matter, please do not hesitate to contact any of the BRI management team.