David Abramson for City AM:
The whole world seems to have gone CVA mad over the last few weeks; businesses that can do a CVA are taking advantage of the bandwagon and doing so.
But landlords are claiming the move as unfair and are trying to stop them, now with some increasing success.
Tenants who are unable to do a CVA now want CVA clauses written into their leases, so they can be on the same rents as their competitors to avoid an otherwise unfair advantage.
This eclectic mix of agendas really comes down to one thing: ‘turnover is vanity, profit is sanity’.
CVAs are needed because properties are held by upward-only rent reviews and rents have reached unsustainable levels, in-line with their turnovers, in large swathes of the country. This is at a time when retailers are also under pressure from increased competition, the internet and economic challenges, caused by Brexit and the cost of inflation.
The question is: is a CVA via an accountancy firm the only way to manage your poorly performing leases? The answer from Cedar Dean Group’s perspective is an emphatic no.
Since 2009, we have been successfully mediating win-win arrangements with landlords and tenants where open, honest discussions can be had around current trading performances of each specific business. Through this, we can find bespoke agreements that work for the businesses but also help landlords take control of the asset they have a long-term strategy for.
Whereas in many cases, the CVA is a ‘one size fits all’, the mediations and restructurings that we carry out are a way of having, sometimes difficult - but upfront - discussions between parties without actually firing a gun.
You could call it ‘CVA diplomacy’.
The challenge that many businesses and landlords find is once a CVA is in place, it automatically becomes a hostile conversation bound by legalities and - more importantly – time, where everybody is under pressure.
There are countless instances where we have found that businesses and their landlords prefer the option to agree an arrangement that works for both parties. So, why isn’t the solvency CVA alternative that we have described above, used more often?’
It’s quite simple, from the businesses perspective, financial directors and their legal advisors see a legal agreement in-place in the lease. As they don’t believe that this can be negotiated, they can go to any accounting and legal lengths to get out of such arrangements.
From the landlords’ perspective they are, in many cases, out of touch with the profitability of their specific unit and are simply hoping that each rent invoice is paid to avoid worrying about an empty property.
We think the tide is definitely changing. Landlords are starting to take notice of the turnovers of their tenants and the affordability that lies within it. The only way forward to resolve the current mismatch between rents and turnover is to have these grown-up conversations, as well as looking at the relationship between landlords and tenants as that of supplier and customer.
While this seems to have been lost in translation over the decades, the pendulum seems to be swinging the other way again and there are certainly interesting times ahead.
As always, we are here to give our opinion and go to the great lengths of being able to avoid such insolvency processes where long-term reputational damage and empty properties can be avoided.