The news that Caffè Nero is set to enter into a company voluntary arrangement (CVA) is perhaps unsurprising. The business’s complete reliance on footfall, and the devastating effect lockdown and ‘stay at home’ messages have had on it has proved too much to bear. Tim Symes, a partner in our Insolvency and Commercial Litigation teams, looks at what CVAs mean for landlords.
The focus of Caffè Nero’s CVA is likely to be on reducing its largest fixed overhead: rent. Its ongoing battle with the landlord of one of its London premises is perhaps a harbinger of that.
CVAs and landlords have never been happy bedfellows. This is especially the case when the CVA appears to target landlords disproportionately compared with other kinds of creditors, sometimes even seeking changes to leases that go beyond the term of the CVA.
The trend for tenants demanding rents based on turnover is also continuing apace. This makes a lot of sense for a tenant but is less attractive for a landlord that has its own fixed overheads and liabilities. That said, if it makes for longer-term survivability of retail tenants per se, then some landlords may welcome the stability it gives.
CVAs have always presented something of a Hobson’s choice for landlords, with the alternative being a tenant in liquidation, no rent at all and another empty unit.
The pressure cooker of unpaid rents building up because of the government’s restrictions on landlords’ ability to collect rents is set to make 2021 even more challenging for landlords and their retail tenants. The latter have been starved of revenue for months while accruing large amounts of rent arrears.
It is likely we will see the number of retail CVAs increasing in 2021, which may at least allow landlords to receive some ongoing rents until the tenant company is able to recover. The stark alternative is the tenant bringing down its shutters for good, adding to the growing sight of empty units in shopping malls and on our high streets.