I had an interesting conversation this week with the Evening Standard, considering the prospect of further company voluntary arrangements, or 'CVAs' on the UK high street as the year progresses.
The vast majority of ‘bricks and mortar’ retailers, as well as hospitality venues, are desperately seeking ways to cut their fixed costs to improve their chances of riding-out the pandemic. Leasehold obligations are often among the most significant of those fixed costs, and the CVA offers a well-tested route to compromise those obligations.
From a tenant’s perspective, a CVA can be used to introduce a greater level of flexibility in their contractual and financial obligations. This additional flexibility could be vital for survival. Changes implemented by a CVA could include reducing amounts payable, modifying payment dates, or even terminating the lease. A popular amendment, as seen in the CVA proposed this week by footwear retailer Dune, is to introduce turnover-based rents. This operates as a performance-based rental payment, which can either replace or sit alongside a fixed rent.
From a landlord’s perspective, many are concluding that sharing the pain with their tenants is the best option, if it helps otherwise-viable businesses to continue to trade. Introducing greater flexibility allows landlords to help their tenants to recover, with the future prospect of sharing in their tenant’s success.
With a return to normality a distant prospect for the UK high street, we expect to see many businesses proposing a CVA in a bid for their survival.
...as the latest lockdown continues and retail and hospitality groups still have no guaranteed reopening date, it is expected there will be more CVAs to come.