Following the decisions of Debenhams and Instant Cash in 2019, 2020 looked to be an uncertain year for the landlord CVA. Six months on and a global pandemic later, CVA activity is rising again to cope with a seismic shift in the retail and casual dining sector. Even with the unprecedented support package from the UK Government, many businesses in the sector cannot survive without a wholesale restructuring of their leasehold portfolios.
Landlord CVAs have traditionally focused on a company's ability to exit underperforming stores. They have also allowed companies to restructure their rental obligations for the remainder of their portfolio over the longer term. The use of CVAs in this manner has not been popular with the landlord community, whose investments have in some cases been severely impacted by this trend.
More recently, some CVAs have sought to use turnover rents as an answer to this problem. These function as a mechanism to reflect changes in market rent over time which removes the rent burden when trading is poor, but which allows the landlord some upside when times are better.
Against the backdrop of the COVID-19 crisis and the ongoing social distancing requirements that the retail and casual dining sector will face, we consider whether it is now time to talk seriously about turnover rents as a key piece in the sector's imminent recovery and longer-term viability.