Many businesses struggle to adjust their cost base as a result of the lack of flexibility in property lease terms. Fixed period leases, upward only rent reviews, the unrealistic and exploitative cost of dilapidations, can all leave businesses caught in a property trap from which they struggle to escape.
A Company Voluntary Arrangement, if structured correctly, is one of the few ways of breaking an onerous lease or dealing with business debt, in a cost effective way. Rent repayments can be stopped with further action prevented following the negotiation on termination of the lease with the landlord. If negotiations with your landlord are not possible then a Company Voluntary Arrangement (CVA) can help you to exit the property and free your company of any lease obligations.
Business support for tenants
Retail landlords back business rates report, but what about rent costs?
The rapid evolution of internet retailing has radically changed the High Street and institutional landlords and their agents are claiming the rating system is now out of date, but there are fewer clamours from institutional landlords to give their tenants a break from the onerous rent charges imposed many years ago with upward only reviews.
Ashley Blake, director of retail portfolio management at Land Securities, said: “The present business rates system is not fit for purpose, particularly in the modern age of internet retailing." Mr Blake warned that entrepreneurs would struggle without an immediate review of rates.
Tim Bettie, head of rating at Jones Lang LaSalle, said a recalculation was urgently needed: "The clamour for change would not have happened if the Government had kept up the revaluations. By the time we have the next revaluation it will be nine years since last time."
Tim Attridge, head of retail rating at CBRE, agreed that more regular valuations were needed. He added: "It is clear that the present system is broken and unfair, the Government is blinkered by the revenue generated by the tax and is ignoring the impact on business growth, with the retail sector suffering more than most."
Reducing business debt pressure
These major property investors have been caught out by the collapse in demand for High Street retail space, but many are still clinging to a feudal attitude to property ownership. On unoccupied premises, they have found themselves liable for a property tax they expected tenants to pay. However, reducing rates, without greater flexibility on rent costs, will be simply subsidising their investment. I have experienced an ironic situation, where the landlord refused to reduce rent to save a tenant’s business, on the basis it would devalue the property, as the valuation was based on a multiple of ‘potential’ rent. In that situation the landlord preferred the tenant to fail and the premises remained unoccupied, as nobody else would take on the overpriced lease.
A review of the system of business rates is clearly overdue, but the review needs to be balanced. Not only should landlords be required to generally adopt a more flexible approach towards leasehold terms, but they also need to be prevented from exploiting any reduction in business rates paid by tenants, by increasing rents.
If I were to join the campaign to change the basis of calculation of business rates, I would also want the review to include consideration of how rents are set, i.e. do away with upward only reviews and build in a market test that also allows rents to go down; build in some common sense to the way dilapidations and repairing covenants are dealt with - pulling out petitioning or mezzanine floors often involves pointless wasted costs and perhaps most importantly introducing a statutory basis upon which a lease can be brought to an early end, without the tenant being liable for the full remaining term.
Whilst some of these measures may be painful for landlords, I would suggest that the increased flexibility, may actually encourage occupancy of otherwise redundant property stock and create a more active and dynamic business property market.
Using a Company Voluntary Arrangement (CVA)
In the meantime, whilst my wish list remains a fantasy, a Company Voluntary Arrangement (CVA) can be used as a flexible way in which business debt can be restructured, paying only what can be afforded and writing off the balance. With a Company Voluntary Arrangement in place a business can exit the property free from lease obligations, along with their stock and fixtures. To this effect a Company Voluntary Arrangement can help to sever those ties to a property within a chain which is holding the business back.
For more information, download our free Guide to CVAs.
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