There doesn’t seem to be a month which goes by where we do not hear about another retailer struggling and facing the serious possibility of restructuring just in order to survive on the UK high street. Inevitably, some of us may be forgiven for thinking that our online shopping habits have been a major contributing factor to this, especially with several retailers failing to adapt to change and offering the consumer a unique shopping experience in order to bring customers back through the doors.

Furthermore, there are suggestions that the difficult high street predicament currently faced by retailers has been exasperated by landlords who are trying to squeeze every penny out of commercial tenants. If you throw in the continued uncertainty surrounding Brexit, the increase of business rates, the rise of the national minimum wage and even regulatory changes such as GDPR, there does appear to be a plethora of reasons as to why the UK high street is in difficulty. 

An inevitable domino effect?

Without trying to sound like a doom and gloom merchant, if former established household names such as Toys R Us, Maplin’s and Poundworld can disappear from our high street as a result of volatile trading conditions, it is only natural to suggest that others are likely to follow. Several other big-name retailers have also struggled in recent times, with House of Fraser, Mothercare and Top Shop – who coincidently recently announced that it has made losses of almost £500m on net loss last year, facing uncertain futures. As mentioned earlier, our online shopping habits have played a pivotal role as well. Popular fashion chains such as Karen Millen and Coast have gone into administration, resulting in fashion chain Boohoo taking over the brands to continue with only an online presence following their collapse. Of course, crucially, online chains such as Boohoo have no interest in owning and running physical stores meaning that the number of closures will only continue to rise, leading to an inevitable increase in empty properties and not so good news for landlords.

The numbers do not look good for retailers

According to the accountancy firm PwC and the Local Data Company, a record 2,481 shops disappeared from the UK high street last year – up 40% from the previous year. Other retailers such as Homebase, Carpetright and New Look had to undertake restructuring deals with their landlords, closing hundreds of shops between them. Nonetheless, the number of empty shops stands at a record high, and in July, the proportion of all shops that are empty reached 10.3%, its highest level since January 2015.

Fewer shoppers on high street

Are CVA's the answer?

So, what was the solution? Well, at the start of 2019, PCR asked the question if 2018 was the year of the CVA, and it certainly appeared to be. Retail and restaurant businesses such as House of Fraser, Mothercare, Carpetright, Jamie’s Italian, Carluccio’s and Prezzo all applied and had CVAs approved, although some high-profile cases of CVAs were failures such as Toys R Us and BHS. Within a CVA, the tenant company can restructure its lease obligations on a mass scale, without the need to negotiate with each individual landlord. The added benefit is that a CVA can also reduce the other real estate overheads of a company and facilitate the closure of unprofitable stores, even if an individual landlord does not approve of the CVA itself.

However, landlords have definitely suffered, with several facing a number of disadvantages, with unfavourable terms being implemented in lease agreements, such as restrictions on future rent demands to be paid by tenants and the potential for landlords being unable to forfeit the lease in the event of rent arrears. It is therefore of no surprise that CVAs are rarely welcomed by landlords. In the example seen of House of Fraser, their proposal of a CVA was aimed at overhauling the company and to potentially shift 31 of its 59 stores, thus cutting the rent payable to the landlords of their remaining stores. Given that failure to agree on a CVA in favour of House of Fraser could have seen the company wound up completely, many of its landlords were faced with the reality of reluctantly agreeing to accept this option. Despite the reduced rent, they were at least able to safeguard some of the income by keeping other stores in operation. Nonetheless, the losses for landlords was substantial.

Adding to the risk of a landlord losing certain rights, there is of course the possibility that a CVA may not succeed, as seen with the high-profile example of Toys R Us. However, there was a small glimmer of hope last Friday after Debenhams’ won a legal challenge against a CVA in the High Court, following a case made against it by the Combined Property Control Group (CPC), which was financially backed by Mike Ashley’s Sports Direct. CPC argued that the CVA was designed to create a situation in which the company’s general body of unsecured creditors paid in full at the expense of certain landlords and local authorities. However, the High Court rejected CPC’s challenge on four of the five grounds addressed, with the only ground not rejected (Ground 3) being in relation to landlord forfeiture. The court declared that the CVA was valid and enforceable but, as ground 3 had succeeded, the relevant provisions in the CVA in respect of forfeiture were to be deleted. Although leave to appeal was granted, the High Court ruling means that Debenhams can push ahead with its CVA and go ahead and close 22 stores.

It is certainly argued that landlords appear to be suffering directly as a result of failing retailers on the high street. However, based on this ruling, landlords need to start viewing CVA plans as a market solution for ailing retailers and as a fairer and more flexible rental system. One option which could appease the landlord could be to re-let its premises. However, with the increase of online stores and an increasingly competitive market, it has become somewhat of a challenge for premises to be re-let. Also, there is always the notion that any potential new tenant may look at the demise of the previous occupant and conclude that the location played a role which resulted in negative footfall, thus affecting profit. However, an institutional landlord may well prefer to have a tenant in occupation of a property – albeit one in rent arrears- rather than a vacant property where no rent is paid at all, as this at least protects them from any potential rates liability.

How we can help

If you are a commercial landlord and worried about the prospect of having empty premises, then do contact PCR, who will be able to advise you and provide you with solutions in dealing with insolvent tenant issues and enforcement, which utilises the Insolvency Act and associated legislation to protect the landlord’s position whenever possible.

At the first sign of arrears or other warning signs, you should contact PCR immediately to undertake an initial financial and business assessment of the tenant’s position. Our assessment will seek to establish whether there is a viable business in the tenant company, perhaps with a view to using a turnaround approach or insolvency process to maximise the recovery potential for the landlord and creditors generally.

For assistance in any insolvency procedures in general, please contact the PCR Head Office on 0208 841 5252 to arrange a FREE initial consultation with one of our Insolvency Practitioners. Alternatively you can email us at This email address is being protected from spambots. You need JavaScript enabled to view it. or use our Priority Contact Form, where we will look to get back to you as soon as possible.

Ahmed Ali
Practice Development Executive 

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