For many years, I have represented tenants against landlords, mainly in the retail and leisure industry, by restructuring leases often at reduced rents or with rent-free periods. In many cases, the alternative is that tenants fail to pay rent, which leaves landlords with empty properties.
We have also acted for landlords assessing the credibility of tenants’ approaches. These negotiations were on a level and ungoverned playing field, where credibility was key to ensuring that mutually acceptable terms were agreed.
Nowadays, we have a process of company voluntary arrangements (CVAs) whereby as long as a tenant can satisfy 75% of creditors, landlords – whether they like it or not – are forced into a group restructuring process that they have to ‘buy into’.
Major retailers and leisure operators seeing their competitors negotiating CVAs are left paying higher rents than those that have successfully restructured in what is already a competitive market. If they are facing difficult trading times, they are often tempted to jump on the bandwagon.
To become forced into adopting terms which are imposed upon them via a CVA, was never envisaged in the original agreement, and it is no wonder that this process has caused so much concern throughout the property industry.
Ownership of retailers has changed dramatically from the genuine operators of the old days, to venture capitalists, investors, and retail entrepreneurs who see CVA protection as an entrepreneurial opportunity to significantly change the numbers on their trading operation.
Who wouldn’t want to reduce their property costs by 25% to 50% through what is now a simplified process compared with the old days, where one had to go to every landlord to renegotiate terms individually?
Perhaps every CVA should involve a cooling-off period, whereby the landlord forced to alter terms should be free to do what it will with the property in order to exit an arrangement it is being forced into.
This could prompt a change in the high street, which would benefit modern, fashionable and entrepreneurial retailers and leisure operators.
There is something wrong with the current CVA process and, as action and reaction are always equal and opposite, those operators who are saved by CVAs will cause hardship on retailers that are trading OK at the moment but may face tough times in the future.