The issue of a so called “landlord CVA” has been controversial for some time. This generally refers to a CVA where some creditors are paid in full while the rent (both arrears and future) is in some cases drastically cut. The landlords will often oppose the CVA but, as they are in the minority, they get outvoted by the other creditors who are affected less, if at all.
The New Look CVA proposed that the rent arrears that had accrued during the Covid-19 pandemic be written off and future rents switched to a turnover basis. The landlords argued that they were unfairly prejudiced as the CVA was voted through with the votes of creditors that were less severely affected and the switch to a turnover rent went further than previous CVAs and fundamentally changed the leases. The Court rejected the argument, stating that the fact that landlords could be outvoted did not mean that their interests were being unfairly prejudiced.
If the Court had sided with the landlords, future CVAs may well have been more balanced between landlords and other creditors; but there might more failed CVAs that do not quite go far enough to save the businesses of tenants. As it stands, more tenants who are struggling with a build-up of rent arrears during the Covid-19 pandemic will turn to CVAs as solutions to their problems. It means that landlords who have suffered from large reductions in rent over the past year could now also be faced with reductions in future rent as a result of a CVA.
The industry fears a “world of hurt” for landlords, including more retail restructurings, after the High Court upheld retail chain New Look’s controversial company voluntary arrangement, under which landlords of more than 400 stores will receive turnover rent.