Landlords and property investors have called the rise in retailers filing for CVAs ‘distressing,’ warning that they ‘are taking advantage of a controversial insolvency procedure.’
The warning follows recent reports that high street retailer New Look tried to cut the rent of one its sites, but then allegedly offered to pay more after a decision was made to cancel the lease.
Paul White, chairman of the fund management Frogmore, told the Times that he found it “distressing” dealing with the fashion retailer as it pushed through a company voluntary arrangement.
CVAs are designed to help struggling companies rearrange unsecured debts, but are increasingly being used by retailers to close stores and cut rents. In March this year, New Look announced plans to shut 60 of its 593 shops and whittle down rents on 393 more.
White has detailed that rather than accept a rent reduction from £200,000 to £120,000 a year, Frogmore decided to take back the lease and relet the unit to Iceland at the current level. When New Look found out, it made a counterbid of £210,000.
“It was very distressing to us, not because we lost anything but because it indicated they didn’t need the rent cut in the first place and it was just a negotiation.”
Conversely, landlords have been lambasted for profiteering for years off of lease holders and ‘deserve no sympathy at all,’ over these tactical negotiations.
Ultimately though, it is the UK workforce that pays the most during the on going ground rent battles. Last week, Poundworld fell into administration, putting 5,000 jobs at risk, Mothercare has put 300 jobs on the line and House of Fraser recently filed for a CVA to close 31 of its 59 outlets.
The British Retail Consortium said retailers only entered a CVA after exploring all other options and would not have taken the decision lightly.
"CVAs offer retailers the ability to continue trading while taking emergency steps which, if successful, may lead to jobs being saved and fewer property vacancies," a spokesperson said.