With Arcadia Group becoming the latest high street retailer to pursue a CVA to close stores and slash rents, retail landlords are increasingly reaching the end of their tether. British Property Federation boss Melanie Leech outlines how the gulf between retailers and landlords can be closed
Arcadia has unveiled plans to shut 23 stores as part of a CVA, becoming the latest in a string of high-profile retailers to make such a proposal. When taken in context with similar proposals from Debenhams, Cotswold Outdoor and Paperchase, the relationship between landlords and retailers is as strained as it has ever been.
Empty shops blight our town and city centres – and everyone is poorer when a high street becomes void of life and loses its role as the beating heart of a community.
Ensuring our high streets not only survive but thrive is of course a larger issue than the fortunes of retail, but retailers and property owners, as well as local and central government leadership and support, will be critical to success.
“Any CVA must be transparent – I would argue it should be seen as an opportunity to set out a positive vision for the future”
Success is undoubtedly predicated on mature and long-term partnership.
It has been disappointing to see a growing number of retailers seeming to take a short-term approach in misusing the CVA process, putting at risk our shared ambitions for vibrant town and city centres by harming the relationships between retailers and property owners, and undermining trust in the legal system that sets the framework within which we all operate.
Retailers are our customers and ensuring a sustainable future for the industry is critical to the property sector’s, and the UK’s, future.
We understand retailers are facing fundamental and acute challenges, as shoppers change their habits and competition intensifies, and property owners will want to support them where possible to restructure and restore their businesses to long-term health. That’s very much in the spirit of partnership.
But CVAs are now becoming a tool to simply shed underperforming assets within a portfolio – to enable a tenant to walk away from their lease liabilities – without that business tackling its wider challenges. This CVA bad practice is unfair and undermines those businesses who are acting in good faith, and it must stop.
Doing CVAs right
Any CVA must be transparent – I would argue it should be seen as an opportunity to set out a positive vision for the future that partners and creditors can understand and buy into, even if it requires them to absorb often large losses.
To do that, the proposals must be, and be seen to be, credible, and those affected need to have sufficient information, and time to digest it, to assess them before being asked to express their view.
We encourage any retailer considering a CVA and its insolvency practitioner to meet with the BPF’s Insolvency Committee as early as possible, to give property owners the opportunity to voice their interests and concerns and flag any proposals that will be difficult to support.
“Engaging with the BPF before launching a CVA must not become simply tokenism or a tick-box exercise”
Engagement with our the committee, which comprises a wide selection of property owners from our membership, helps to ensure property owners’ interests are better understood in the process and that insolvency practitioners have a helpful sounding board as they advise their clients – it never means the BPF has approved a CVA.
Nor is it necessarily an indication of good practice. Providing little information, or giving an unreasonable deadline for engagement, is not meaningful engagement.
Nor is launching a CVA almost immediately after meeting with our Insolvency Committee, when its clear there has been little attempt to make meaningful changes that reflect concerns raised by property owners.
Engaging with the BPF before launching a CVA must not become simply tokenism or a tick-box exercise, and we will be clear in saying so if this happens.
Through a better dialogue, the BPF has been able to influence the approach taken in CVAs and to flag clearly the potential proposals that are likely to be particularly difficult for property owners affected by the CVA to support. For a retailer acting in good faith, that should be really helpful insight to obtain.
As part of the discussion, there will always be give and take. But there are also red lines. The BPF has developed a CVA engagement guide that includes our top 10 red flag clauses – which insolvency practitioners or retailers may ask for but are considered as totally unacceptable to a property owner. For example, rental discounts must not survive the termination of the CVA.
The retail sector requires bold and innovative leadership, and the support of its critical partners – the owners of their stores and warehouses.
Only those who can work together will unlock mutual opportunities, to see our high streets become more able to adapt and innovate, to truly embrace advances in technology, to lead the charge for a more positive outlook for our urban centres, and to better mitigate the impact of political instability and macroeconomic peaks and troughs.
Getting this right will have the most profound, long-lasting impact on people’s quality of life, the sustainability of communities across the country, business performance, productivity and the UK’s economic and social wellbeing.