Landlords fight back against use of CVAs

Published on: 31st May 2018

High street landlords have accused retailers of forcing them into agreeing to rent cuts via increasingly controversial CVAs.

Struggling businesses including the department store chain House of Fraser and the children’s retailer Mothercare are all seeking company voluntary arrangements (CVAs), where property owners accept lower rents to help a tenant avoid financial collapse.

But, as reported by The Guardian newspaper, they are meeting with growing resistance from major property companies, alarmed by the growing list of CVAs sought this year.

Property companies Legal & General and Westfield are among about a dozen landlords plotting opposition to the imminent CVA by House of Fraser, owned by China’s Sanpower. They are weighing up plans to make demands in return for their approval, such as detailed financial forecasts, an equity stake in the 169-year old department store chain or a cut of its future profits.

Restructuring experts from consultancies Begbies Traynor and JLL are advising the property companies, who can block the CVA and demand improved terms if more than a quarter of landlords rebel against the company’s proposed terms.

The move by House of Fraser’s landlords is part of a broader seam of discontent in the property industry about the burden placed on landlords by CVAs.

Martin Greenslade, the chief financial officer of Land Securities, the UK’s largest commercial property owner, said CVAs should only be used an emergency option to prevent collapse.

“Where a business has genuine trading difficulties, a CVA can help provide the necessary breathing space to restructure and raise new funds to avoid administration,” he said. “In general, we are happy to support these agreements. Where the operating performance of a business is fine but its ownership structure has excessive debt or management simply wants to improve its operating profits by reducing rents, we do not believe that the CVA process is fair or appropriate.”

He continued: “For some smaller landlords, the financial impact of a CVA-imposed rent reduction can be very significant. The CVA should not become a management tool to improve profitability at their expense.”

Some retailers have also become frustrated with the CVA system after watching rivals with weaker finances secure lower rents than them. Fashion chain Next is to insert a CVA clause into its lease agreements under which its own rents must also be reduced if any of its landlords’ other tenants agree a CVA.



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