CVA and Dilapidations … A Risk that Needs Managing!

Over the last few months several major high street retailers have been forced to close their doors, largely due to online competition or debt that can no longer be serviced.

Such as: Toys ‘R’ Us, Claire’s Accessories, House of Fraser, BHS, Austin Reed, New Look, Byron Burger, Blue Inc, (to list but a few).

As a result, landlords are left with vacant premises which are out of repair and hefty costs to put things right to attract a new occupier. Now, more than ever it has become glaringly apparent that at this point in the property cycle, landlords need to protect their interests against the risk of tenants disappearing or restructuring under the CVA banner.

So, what is a CVA?

“A CVA can offer a mechanism that allows a tenant company to restructure its rent obligations or change the terms of its leases across some or all of its premises, often to the significant detriment of its landlords (and possibly without the consent of all of the affected landlords).” Not good!

Don’t leave it too late!

If there are questions over the tenant’s stability get the asset inspected. Consider interim remedies such as repair or Jarvis v Harris notices under leases and get some positive engagement started with the tenant. If you think the tenant will go under, assess the cost of repairs now and at the end of the term. So if a CVA happens as accurate a case as possible can be presented to the receivers and chances of recovery of sums are improved.

If you don’t assess the loss and damages, you will likely miss the boat and could be given say £1 by the receiver in lieu of dilapidations.

Don’t find yourself sailing down the river without a paddle. Get professional input from a building surveyor re dilapidation costs and if possible, start talks with tenants to keep assets in repair. There will be more casualties likely over the coming months and more landlords left out of pocket.