UK landlord revolt against CVAs grows

By

Barbara Santamaria

Published
May 29, 2018

Landlords and property owners are coming together to fight the retailer abuse of the increasingly controversial company voluntary arrangements (CVAs).

Used by a growing number of struggling retailers such as Mothercare and New Look in what has been described as an “opportunistic bandwagon”, CVAs allow retailers to renegotiate rent cuts with landlords to avoid financial collapse.

Whilst CVAs are usually supported by creditors, the rise in the number of retailers seeking CVAs is worrying property owners and landlords, who believe the misuse of the insolvency process will damage not only them but also local communities and the wider economy.

In a letter sent to the Commons housing, communities and local government select committee, retail property community Revo said CVAs are now being used “solely to reduce rental liabilities and terminate lease agreements entered into by owners in good faith.”

The industry body complained about the fairness of the process, as in many cases CVAs are voted on not only by landlords, but also creditors who won’t feel the effect of rent reductions.

“The principle of fairness which underpinned the original legislation has been completely lost in allowing all creditors to vote on a process which in fact targets a single creditor group. Furthermore, the misuse of CVAs, which as stated are voted upon by many creditors who are not directly subject to the immediate implications, has a number of adverse consequences for our members and the towns and cities they are invested and operate in,” the letter continued.

Mothercare, New Look, Carluccio, Prezzo, Jamie’s Italian, Byron and Carpetright have all taken the CVA route this year, with House of Fraser expected to follow with its own CVA this June. The wave of store closures and rent renegotiations prompted Next, which is in good financial health, to consider adding a CVA clause to its lease agreements.

Revo said many of the recent CVA proposals run against the law and could be open to legal challenge. It asked the committee to scrutinise the financial assumptions made by advisers to justify CVA proposals and to investigate the long-term success of the process.