It is, of course, a tough time for businesses everywhere, but landlords in particular continue to be on the receiving end of bad news, especially with the increasing number of high-profile casual dining and retail company voluntary arrangements (CVAs) that we are currently seeing.
Last week alone, Pizza Express announced that it is looking at a CVA, followed just days after by River Island’s CVA proposal. The question many landlords are asking is: who will be next, and what are my options?
Some landlords may reluctantly conclude that in a depressed market, they have little choice but to accept these proposals, especially if they face being outvoted by other creditors approving the CVA. However, this is not always the case, and there are alternative routes landlords can take depending on their circumstances.
One option is not to wait for a CVA proposal to land. When the Covid-19 pandemic first hit the UK, many landlords offered tenants short-term rent concessions around the March 2020 quarter day. More recently, there have been reports of some landlords proposing new rent terms to tenants, which tend to be based on a turnover-linked arrangement. While such agreements have their upsides, they also mean that the landlord shares more risk if the tenant’s business continues to struggle and turnover does not recover.
A landlord might also find that any proposal that comprises the payment of rent during the life of the CVA confers new break rights in its favour. In the current market, it is typical that many will be disinclined to exercise such rights. However, landlords with leases falling into the company’s poor performing category, and that are being offered commensurately poor terms under the CVA, might simply prefer to mitigate their losses and seek recovery from a former tenant or guarantor instead (assuming, of course, that they are solvent).
Where a CVA proposal has been approved and therefore binds a disgruntled landlord, there is sometimes the option to challenge the CVA, either on the basis of material irregularity or unfair prejudice. As such, a landlord, or group of landlords, with a justifiable concern may be able to secure modifications to the CVA proposal before it passes. From the company’s perspective, such a move can avoid a later challenge and the corresponding uncertainty over the future of the CVA and underlying business.
It is important to stress that, although CVAs can help the hospitality and retail sectors out in these trying times, landlords should not necessarily feel their hands are tied.
Tim Carter, partner at Stevens & Bolton