Company Voluntary Arrangements (CVAs) are adding to the woes of commercial landlords as retailers find it increasingly difficult to make ends meet and use them to renegotiate their tenancy debts says Andrew Smith, property partner, Bircham Dyson Bell LLP.
"Retailers are looking to cut costs and rent is obviously a big cost both in terms of historic debts, but also going forward. Landlords are becoming increasingly under the impression that CVAs are being engineered primarily to target lease obligations," explains Andrew Smith.
"Landlords frequently wish to object to CVAs but more often than not they find themselves at the bottom of the pile of other creditors and more likely to be outvoted - typically by the banks or HMRC. So whilst landlords notionally have a choice as to whether or not to accept the proposal, in practice they are at the mercy of others.
"Further, well advised tenants will try to engineer that the CVA is proposed just after a quarter day so that (assuming they have succeeded in keeping rental payments up to date to that point) the landlord's voting rights are reduced even further. As a landlord's claim for future rent is treated as an unascertained debt the unliquidated element of a landlord's claim carries a value of £1 for voting purposes."
Many leases will not contain express provisions allowing the lease to be brought to an end if the tenant enters into a CVA. Even if they do the making of the CVA negates those provisions and prevents the landlord from terminating the lease. This means that even if a landlord can find a new tenant willing to pay a higher rent than proposed under a CVA the property could not be released to enable a new lease to be granted leaving the landlord out in the cold.
"There are many pitfalls and it's important that landlords are properly advised as soon as there is any indication that a tenant is in financial difficulty. Once a CVA is in place the circumstances under which it can be challenged are very narrow".
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