To CVA or not CVA: Met with cynicism from landlords, are they a necessary evil?

To CVA or not CVA? That is the question.

To agree to a proposed CVA or not agree to a proposed CVA? That is the even bigger question.

Hamlet’s dilemma pales in comparison to both. The Restructuring & Recovery and Retail teams at Knight Frank are perfectly positioned to assist in guiding both Lenders and Landlords through the CVA pantomime. 

CVAs are probably the most contentious issue in retailing. They bring to a head many of the simmering grievances of both landlords and tenants, while also laying bare many of the structural failings of the wider retail industry.

For retailers, CVAs buy breathing space, if not a stay of execution. Rather than be liquidated outright, they can significantly reduce their cost base by ‘renegotiating’ their financial obligations, not least by cutting their rent roll and shuttering stores they no longer want. 

This is why CVAs are met with such cynicism from landlords and lenders – they regard a CVA as ‘a get out of jail free’ card for the retailer, a way of extricating from legal and financial agreements.

But given the current state of retail occupier markets and far from rampant retailer demand, landlords are effectively held over a barrel and have few alternatives other than to agree to whatever is proposed.

Less a compromise, more blackmail on the part of retailers – if you don’t agree to these terms, we’ll go bust anyway and you won’t get any rent at all.

CVAs may be a necessary evil in retailing, but they are still deeply unsatisfactory, not least because of the perceived lack of transparency. Rather than bring clarity, each CVA proposed seems to cloud further already murky waters.

Please contact Marc Nardini or Neil Brown to start a conversation about how Knight Frank can help or contact: