Rent reductions:

With “blood on the high streets”, retailers going into administration and others obtaining rent reductions through the benefits of CVAs, successful retailers are “seeing red”.

The CVA (company voluntary arrangement) is similar to the personal IVA (individual voluntary arrangement), where an insolvency procedure allows a company with debt problems, or one that’s insolvent, to come to voluntary agreement with its creditors. This often means landlords accepting a reduction in rent, store closures and consequently, rental values generally are suffering.

So those tenants such as Primark who find themselves locked into higher rents through existing leases see themselves at a disadvantage to those other traders who have effectively been let-off their lease obligations.

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Primark chiefs, says the The Sunday Times, are calling for a 30% reduction in their own rents as a result of feeling “hacked off” that other retailers are gaining a competitive advantage from lower rents as a result of CVAs.

Primark is trading successfully through 189 UK stores but wants to see its rent bill reduced on leases that it is locked into and have several years yet to run. In return for reaching a compromise with its landlords, Primark has said it is willing to invest in store refurbishments and enter into longer leases.

Primark is joining other successful retailers who are seeking to reduce rents to a level which reflects the changing retail property environment. Next, and Waterstones the bookseller are thought to have secured substantial rent reductions up to in the region of 30% when leases came up for renewal this year.

Strong retailers are increasingly annoyed to see failing businesses, competitors of theirs in some cases, benefiting directly by exiting existing leases without penalty or achieving substantial reductions in rent.

Property Week reports that fashion retailers Arcadia and Monsoon, like other well-known UK high retailers, have managed to close unprofitable stores, while paying lower rents for their remaining profitable ones.

One landlord told Property Week that Primark’s property team has been instructed by senior management to go out and get rent reductions.

“They are looking at CVAs and are hacked off that they are losing a competitive advantage. They want a slice of the action,” said this landlord.

Landlords, on the other hand, are increasingly angry themselves because they are losing income as result of CVAs, and some are challenging the system. But ultimately many landlords have to accept rent reductions as being preferable to driving their tenants into bankruptcy and being left with unoccupied premises, a liability when they have to pay business rates and insurance bills.

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