The news concerning the troubles being experienced by retailers such as Debenhams and Monsoon Accessorise casts a further pall over the high street on what is a changing landscape for the world of retail property and restaurant chains.
No longer can owners of shopping centres safely rely on having one or two key anchor tenants as a bulwark to maintain the value of their investments. Recent history has shown that even the most blue-chip of retailers is vulnerable when they struggle with the need to reduce costs in order to compete with more nimble retailers, such as those who trade online.
As a result, we have seen Mothercare, Jamie’s Italian, Byron and Giraffe entering into company voluntary arrangements (CVA) in order to force landlords to accept reduced rents or, for badly performing sites, to accept surrenders of leases on the basis that getting some return is better than the risk of getting nothing in the event that their tenant goes into liquidation.
CVAs are created under the provisions of the Insolvency Act as a means of permitting a company to present a scheme for approval by creditors. CVAs are becoming more commonplace and there is criticism that directors are keen to go down this route for reasons unconnected with saving the business – possibly so that they can avoid the harsh glare of an investigation by a liquidator who can look closely into their activities which might have been the cause or a contributory factor in the company’s decline.
For landlords, the effect of a CVA can present a number of challenging problems, not least where it is a case of being left with vacant premises which have little immediate prospect of being re-let.
Companies which are vacating property as part of a CVA are less inclined to show the same care and attention in clearing a property as would be the case where a company is vacating at the end of a lease with the prospect of a proper dilapidations claim.
However, it is now clear that landlords are now more ready to co-operate and to co-ordinate voting at a CVA meeting so that their interests are better protected. This may range from voting down less palatable elements of the scheme presented to them or appointing a joint supervisor or another supervisor entirely who might be more objective and robust in his dealings with the company and its directors.
Indeed, we are currently awaiting the outcome of a legal challenge to the Debenhams CVA which is currently making its course through the courts which might well tip the scales back in favour of the landlords. A decision is awaited
One of the lessons to be learned is that landlords do need to be proactive in monitoring the business of their tenants to predict as far as possible where storm clouds might be gathering and, if events do take a turn for the worse, to be ready to collaborate with other landlords to properly scrutinise the terms of a proposed CVA.
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