House of Fraser CVA under fire from landlords

House of Fraser refinance

House of Fraser’s upcoming strategy to close swathes of stores and renegotiate rents on other shops has come under criticism from landlords who will bear the brunt of the rent cuts.

The British Property Federation (BPF) and Revo – which represents both landlords and retailers – said members were increasingly unlikely to approve company voluntary arrangements (CVAs).

House of Fraser is set to launch its CVA next month and is likely to include plans to close around half of its 59 store portfolio, as well as seeking rent reductions on those remaining open.

However, questions are now being raised around the department store’s motives to undertake a CVA.

BPD director Ian Fletcher told the Telegraph that its members were becoming less likely to absorb the losses associated with CVA deals, especially in a market where it was becoming harder to re-let space.

Also speaking to The Telegraph, Revo president Mark Williams said “CVAs have become an acceptable method for companies to get out of leases and that’s unfair”.

Against a backdrop of increasing numbers of retailer insolvencies, high street landlords are now accusing them of forcing them into agreeing to rent cuts via CVAs.

House of Fraser joins Mothercare, New Look and Carpetright, who have all entered into CVAs this year.

If House of Fraser’s CVA does go ahead, it is likely to come under strict scrutiny from its landlords, including Legal & General and Westfield.

They are reportedly considering plans to make demands in return for their vote of approval of the CVA, such as detailed financial forecasts, an equity stake in the 169-year old department store chain, or a cut of its future profits.

Property companies can still block the CVA and demand improved terms if more than a quarter of landlords rebel against the company’s proposed terms.

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  1. The landlords must know outrageous UK rents and council business rates are a key reason for the sad situations we face in UK retailing. The landlords have had it all their way for far too long. The system has to change. The most workable system is one of moderate base rents with a turnover percentage on top. And, leases should be shorter term, certainly for smaller retailers — three to five years. This is the system that works so well in America, where retailing is far more alive and well than in the UK. The American type system also forces landlords to become the retailer’s business partner (instead of sitting back, doing little and collecting huge rents for 25 years). Hopefully current retailing conditions will force this type of much needed change.

  2. Agree with the comment above, as a Brit based in the U.S. operating a retail business, terms here are far more attractive than to open stores in the U.K.

    There is no need to find rent quarterly in advance, it is paid month to month, a percentage of our sales for each store is paid to the landlord and landlords are far more vested in the success of you as a business than simply collecting a rent check each month.

    Instead of clutching at straws and feeling wronged, British landlords need to accept that online retailing in the U.K. is much more progressed than other countries, including the U.S., and if they wish to continue renting their assets, they need to be more creative and open to change.

  3. Have to agree with both Butler and Eib’s comments. UK commercial landlords have no stake in the success and viability of the business they’re letting their premises to.
    They raise rents year on year taking no account of their client’s ability to absorb increases and then start complaining when their clients initiate CVAs to get out of onerous leasing contracts.
    The Government has spent billions bailing out the banks and institutions who invested unwisely in hyped up asset valuations to prevent those values crashing in 2008. Now it needs to assist high-street retailers by insisting that commercial leases are linked directly to business performance.


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