One of the recent amusements has been watching The Times resolutely taking the landlords side in matters economic. There’s been the long running insistence that business rates must be changed because retailers have to pay them. When as we illuminati all know, the incidence is actually upon the landlord. So, the call for online sales taxes, redistribution of rates from property to sales and the like, this is all an argument for a tax cut for landlords.
Then there’s this with the company voluntary arrangement jobbies:
Landlords are urging the government to take immediate action to prevent retailers “abusing” Britain’s insolvency framework by shifting the cost of “years of failings and underinvestment” on to property owners.
The British Property Federation, which counts the nation’s biggest commercial property owners, including British Land, Land Securities and Hammerson, among its members, has written to Lord Callanan, the corporate responsibility minister, calling for tighter rules.
The reason CVAs exist is because there’s a quirk in British leases.
Hmm, no, that’s perhaps too emphatic. The reason they’re used to much is because of that quirk.
The thing being complained of here is that tenants go into a CVA – sorta a bankruptcy lite – which means that they can demand a renegotiation of rents. Forgiveness of past rent due, perhaps, but the real point is to force landlords to the table to renegotiate rents on leases off into the future.
This does pose the obvious question. Why would you flirt with bankruptcy just to get a supplier to negotiate? The answer being that UK leases tend to be long – 21, maybe 25 years – with regular rent reviews. Perhaps every three or five years. But here’s the thing. Most – near all older – such contracts insist that the rent review is upwards only.
If the market rent has fallen, as has been true recently as online eats at the High Street, then you as the tenant on an existing lease are shit out of luck. The landlord just sits there smugly and insists that you must continue to pay above market rent. You can’t close up and walk away from that shop because you’re still on the hook for the rent until the end of the lease. You might be able to offload it to some other retailer but rent doesn’t fall when you do. And if the market price has fallen then who is going to walk in to pay above market?
You are stuffed that is. Hey, sure, you signed the contract and all that so tough. But, then, well.
The CVA offers a way out of this. You can force the landlord to the table. For, in reality if not in entirely and fully legal detail, the CVA breaks the lease. At which point you’ve now got a shop in a place where you can renegotiate the rent to what market is. Sure, the landlord has the option of not agreeing and kicking you out too. Which they don’t because the new lease, with whoever, will be at that now lower market rent anyway.
This is what is being complained about therefore. The landlords are complaining about people using the only manner they have of getting around the upwards only rent review clause.
The federation urged the government to ensure that the voting procedure is fairer to those that the CVA compromises by giving their votes greater weight than the votes of unaffected creditors.
Thus landlords want the entire process to be changed. When, if we’re honest and fair about it, it would be simpler for landlords simply to waive the upwards only clause, wouldn’t it?
The bigger point here though being that the landlords aren’t happy about the boot being on the other foot. Both with business rates and with CVAs. Oh dear, how sad.