Shop landlords in Northern Ireland call time on CVAs from big name retailers who want rent cuts
Shop landlords in Northern Ireland are fighting back against retailers seeking rent reductions through company voluntary arrangements (CVAs), the Belfast Telegraph can reveal.
Weekly Business Digest Newsletter
Retailers from fashion chain New Look to restaurant business Prezzo and flooring firm Carpetright have entered CVAs, a form of insolvency, to stay afloat.
Department store House of Fraser is to give details of its CVA next month. Mother and baby products retailer Mothercare is expected to announce a CVA on Thursday.
The arrangements often mean landlords are asked to accept rent cuts.
Kieran McGarrigle, finance partner at law firm Arthur Cox in Belfast, said he is advising landlords, including private equity owners of shopping centres, here on how they can resist the process.
Mr McGarrigle would not name the retailers behind the CVAs which could potentially be challenged.
But he said landlords were seeking advice on CVAs which had already been agreed and those which were yet to be confirmed.
"Landlords are becoming understandably concerned by the developments in the use of CVAs varying the terms of lease and tenants obligations to them," he said.
While landlords can vote on whether or not they accept the CVA, Mr McGarrigle said the proportion of the total debt owed by the retailer was typically not big enough to enable them to reject a CVA proposal.
"Landlords are almost forced to accept CVAs unless they have a significant proportion of debt themselves, which is unlikely," he said. "They don't have the requisite voting power to vote them down, leaving them with the options of accepting it or taking legal action."
And he said the growth in CVAs could hit the wider investment market. "The more CVAs we see, the more nervous banks will get locally about funding commercial development with a large retail client," he added.
Mr McGarrigle said Northern Ireland landlords were considering High Court action which could include joining forces with landlords in Great Britain to bring proceedings in a form of class action.
There are a large number of stores in Northern Ireland which could be subject to CVAs. New Look has a total of 26 outlets, while Carpetright operates nine.
House of Fraser is the anchor tenant at Belfast's Victoria Square Shopping Centre, while there are four Mothercare units here.
Andrew Webb, director of economic advisory at Baker Tilly Mooney Moore, said retail was in a difficult patch "bringing long term sustainability into sharp focus for many retailers".
"Property and lease commitments is part of that mix. The concern from a landlord perspective is that CVAs are becoming increasingly used by viable companies to extract themselves from property contracts entered into during a different operating context," he added.
Darren Bowman, director of business recovery and insolvency at Baker Tilly Mooney Moore, said landlords were often left with little real option but to accept a CVA.
"The reality is that the liquidation alternative will likely leave the landlord with no tenant and an ongoing rates liability," he said.