EDITOR’S COMMENT Forgive me, dear reader, but I am confused. Last month, landlords across the country were able to breathe a small sigh of relief when High Court judges ruled – in two separate cases – that tenants could not sidestep their obligations to pay their rent.
Fast-forward a couple of weeks and landlords have now been dealt a double whammy, with two major restructuring cases being called in favour of the occupier.
On Monday, New Look won approval to press ahead with its controversial CVA plan that will force landlords of more than 400 of its stores to accept turnover rents.
Property owners including Landsec and British Land had argued that New Look’s use of the CVA was fundamentally rewriting lease agreements in an unprecedented way and was plain unfair.
Then yesterday (12 May), the High Court allowed Virgin Active to put its “super CVA” plan into practice. As part of the restructure, Virgin Active will terminate leases on several of its gyms and reduce its rent across many others. Virgin Active, part-owned by billionaire Sir Richard Branson, has utilised Part 26A of the Companies Act, a new legal mechanism introduced by the government last year, which makes restructuring easier.
Easier for occupiers to do, but no less damaging for the landlords that are seemingly always left holding the baby.
A group of 46 landlords were protesting against Virgin Active’s restructuring plans, again labelling them unjust and inequitable.
These High Court rulings must now surely wipe out any hope landlords might have had of being able to recover the £5bn-plus of unpaid rent that the government’s moratorium has enabled to build up. Just as confidence was returning for property owners that, come the end of next month, they might not have to continue to shoulder the cost of Covid, judges have opened the floodgates for a potential bloodbath of CVAs.
If I was an occupier and had been given the green light to get out of deals that I thought were great when times were good but now I wasn’t so sure, I know what I’d do. And I have some morals. Some. There is, I fear, a “world of hurt” – to quote Reed Smith lawyer Katherine Campbell – coming for landlords, and something needs to be done to stop it.
Both of these cases set dangerous precedents. They allow wealthy individuals and big private equity to take value out of business during good times but turn, run and flee like cowards in bad times. These rulings enable allegedly smart business people to rip up the contractual obligations they made – presumably with advice from fancy lawyers and consultants – when the going was good as soon as the going gets tough.
The British Property Federation’s Melanie Leech sums it up well: “While the Covid-19 crisis has brought genuine hardship to businesses, it has also been cynically used as an excuse to shift onto property owners the cost of years of failings and underinvestment – transferring wealth from property owners, who represent local authorities and millions of pensioners and savers invested in commercial property, to a business’s shareholders,” she says.
“This abuse is short-changing our public finances and pensions and is damaging the investment that will underpin town centre recovery and the government’s levelling-up agenda to build back better.”
Property owners have fought back. And this week they lost. But that battle cannot be over. The big question now is what are we going to do about it? How does real estate stop the abuse and force government to prevent it continuing?
Answers in an email.
To send feedback, e-mail samantha.mcclary@eg.co.uk or tweet @samanthamcclary or @EGPropertyNews
