REAL INSIGHT - Property Update - October 2012
The recovery position
The recent JJB Sports administration highlighted another potential consideration for landlords – namely, the wisdom of company voluntary arrangements (CVAs). JJB went through two failed CVAs prior to going into administration in September.
A CVA is a 'consensual' arrangement voted for by 75% of a company's creditors with the intention of returning an ailing business to profitability. For landlords, CVAs will often involve changing the terms of leases – for example, providing that rent is payable monthly rather than quarterly, or in arrears. Landlords of unprofitable units may be invited to accept a share of a pot of money set aside to part compensate them in return for a release of future obligations under their leases.
Unless tenants are in arrears at the date that a CVA is proposed, there may be little that landlords can do to prevent proposals being voted through. Although tenants often have significant contingent liability under their leases, the chairman of a CVA has discretion as to whether to consider this contingent debt for voting purposes, and generally this contingent claim will be valued at a nominal sum, carrying insignificant voting rights.
Nevertheless, where a CVA is proposed there may be a number of issues for landlords to consider as an alternative simply to going along with other creditors.
- If a tenant is in arrears of rent, or in breach of other lease covenants, it may be possible to forfeit the lease prior to a CVA being voted through. The two failed JJB CVAs demonstrated that it would have been far better for certain landlords to take back premises than to allow an ailing business to limp on.
- Even where landlords of failing stores have little option but to accept a compromise in respect of contingent rent liability under a CVA, great care must be taken that any subsequent surrender arrangement does not have the effect of reducing its entitlement even to this sum.
- Even where a landlord is unlikely to influence or challenge a CVA proposal on an individual basis, there may be merit in joining with other creditors to influence a result.
- There is considerable strength of feeling in the industry that landlords are being unfairly singled out in comparison to other types of creditors. There may be increasing appetite to investigate whether CVA that binds a landlord creditor even if it votes against its terms might be challenged on the grounds of unfair prejudice or material irregularity.
Our dedicated real estate litigation team has significant experience in dealing with tenant insolvency.
Frustrating community rights
From 21 September 2012, the Localism Act 2011 has empowered local communities to delay sales or long lettings of "assets of community value" (community assets) which "further the social wellbeing or social interests of the local community".
Local authorities are to maintain lists of public/private community assets while interested local voluntary and community groups may nominate other assets for possible inclusion, such as pubs, shops, leisure centres, post offices, car parks and marketplaces.
Owners of such properties must notify the local authority of a proposed disposal which triggers a moratorium period lasting up to six months. If this ends without a successful bid from a local group, the seller has a further 12 months to contract on better terms with a third party. If after 12 months contracts have not been exchanged, the process is repeated.
The practical implications are untested but there may be loopholes - please contact us for further advice.
A Government guidance document for local authorities can be viewed here.
Charging ahead on planning
The amendment of the CIL regulations to remove the current unsustainable double charging position, which arises where a consented scheme needs to be varied to accommodate necessary adjustments, will be welcomed by the development industry.
There is no doubt that the previous position effectively mothballed a number of schemes. The recently reactivated Landsec Victoria proposal is evidence of this.
A word of caution, however. Clients who rely upon a section 73 consent to increase the size of the originally consented scheme will be caught by a CIL requirement with the "chargeable amount" being calculated by reference to the additional floorspace approved by the section 73 consent if it exceeds the 100sq m threshold.
The moral of the story - wherever possible, limit section 73 adjustments for schemes approved prior to the introduction of a charging regime to matters other than floorspace increases if you want to avoid being caught by CIL.
The Future of London
On 4 October, Mishcon de Reya and Central held the first in a special series of linked discussions, entitled The Big Think on the Future of London. The roundtable, sponsored by Derwent London with Property Week as media partner, looked at the structural change in London’s economy and geography, with a shift towards east London. A short film can be viewed.
To view Property Week's article please click here.