Editor: It seems that Dan Taylor’s article in Property Week celebrating the Westfield vs Fragrance Shop CVA wins for landlords was premature.
Last week’s judgments on New Look and Virgin Active spell trouble for landlords. It seems that not only have landlords’ break clauses been negated under a section 26A restructuring proposal (RP), but perhaps more importantly, within the detail of the judgments is the statement that the votes that dissenting landlords enjoyed on a CVA don’t count anymore.
For a landlord to overturn the section 26a RP, it must show it would be better off if the tenant liquidated, than it would be if it accepted the RP.
In reality, unless the landlord wants to redevelop, if the proposal is pitched at a post-coronavirus rent, and the landlord can’t better it by finding a new tenant, the RP succeeds and arrears are wiped out.
Interestingly, landlords were bunched into five categories – which I did when I acted for Athena, Dillons and Rymans in the ‘80s – where on most of the prime units landlords were offered deals without much suffering, and others in the Cs, Ds and Es offered far lesser terms, if any at all.
All in all, I think the judgment, although apparently in favour of tenants, was a fair one, as commercial market reality prevails.
Unfortunately, it has been impossible for the mega leisure or retail operators to negotiate all terms with all landlords, because loss-making premises need to be dumped to ensure group survival.
Section 26a is going to become a buzzword from July onwards, whatever the decision made by the government as to how the moratorium comes off – on one end of the spectrum no holes barred, stat demands, winding-up orders etc, and on the other, enforcement on landlords and tenants to strike fair deals, which could involve rent-free periods and lower rents.
Even the British Property Federation, as I write, has volunteered ‘pay your rent and schedule the outstanding arrears, on a deferred basis’. A step in the right direction, but I fear not enough to save beleaguered occupiers, many of whom haven’t paid rent for 15 months, and will face arrears demands when the moratorium is lifted.
Unfortunately, it seems, this is just the first of a tidal wave of cases yet to come to our attention.
Anthony Lorenz, managing director, The Lorenz Consultancy
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