The impact of a Company Voluntary Arrangement (CVA)

Published 15 November 2019

"The original purpose of a Company Voluntary Arrangement (CVA) was to help a business continue trading and avoid going into liquidation.  But recently these agreements have, in some cases, been abused, with businesses simply using them as a way of driving down costs.

Landlords have to make the call about whether to accept a tenant staying on at a lower rent, or allowing the unit to become vacant  - this will depend on the market at the time.  Although the pressures on retail are well-documented, in many locations occupancy rates are holding up: in Norwich city centre the situation is actually reasonably healthy (although some locations do have high vacancy rates), and in many of Norfolk’s market towns, the occupancy rate remains high.  In these situations, landlords may decide to decline a CVA and take their chances in the market.

At one stage retail was very much the favoured commercial property investment class, but the overuse of CVAs has dented that perception to an extent.  In addition, tenants are less likely to agree to long leases which have only upward rent reviews.

Investors need to be realistic about the state of the retail property market.  It is better to negotiate a sustainable rent at the start of a lease – even if this means lower yields – than risk the occupier not being able to pay the rent further down the line, and either resorting to a CVA to drastically cut the rent they pay, or else disappearing altogether and leaving the landlord with an empty unit."

Guy Gowing

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