Author: Bekki Ellis, 25 May 2018

As the volume of Company  Voluntary Arrangements (CVAs) continues to rise through both the retail and restaurant sectors, Next is reportedly said to be including a “CVA clause” when it renegotiates rents. Under the controversial clause, if neighbouring retailers were granted rent cuts as part of a CVA process, then Next’s stores would be entitled to a similar discount. According to Next, it “levels the playing field” for retailers both now and in the future, as the retail landscape changes shape.

Given the scarcity of similar operators that occupy large, prime space, Next’s annual accounts demonstrate the power it has when negotiating with landlords. Last year, Next achieved a 29% rent reduction across 19 stores in its portfolio. This year, it plans to renegotiate 29 leases and reduce costs further given the weak trading outlook.

shopping centre

Following disquiet from landlords in the wake of New Look’s CVA, a number of whom are subsequently pursuing a new tenant rather than a straight reduction in rent, and fears regarding any move by House of Fraser to do similar, the move by Next is likely to trigger further backlash from landlords, who are currently largely powerless to stop the process, despite being the party most impacted.

Given the steady stream of CVAs, with the primary aim for retailers to reduce costs and close unprofitable stores more easily, it is essential that landlords understand the performance of tenants within their assets. The days of disregarding tenant performance because they are ‘on the hook’ are long gone and by the time a CVA hits it is often too late. Landlords who wish to get ahead need to understand both current and future performance by not only merchandise group, particular to their individual catchment, but also the financial stability and ability to perform of their current and target tenants.

FSP can help with both, by assessing the viability of the retailers within an asset and offering advice on how to maximise its potential. Contact us to find out how.

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