The Travelodge CVA has been hailed as a success with 6,000 jobs saved and 97% creditor support, not least by the British Property Federation, which claims that Travelodge is one of the many businesses saved by landlords backing CVAs. However, the BPF continues to challenge the CVA as a restructuring process, implying that CVAs are unfair to landlords.
The real issue is proper recognition of the covenant between a company and its creditors. Landlords are a special type of creditor in that they frequently enjoy deposits and guarantees and have special remedies, but they bear relatively high risks of loss in the retail sector, where there is currently a higher than average incidence of insolvency.
None of this suggests a problem with the CVA mechanism. On the contrary, it highlights the commercial position in which the landlords tend to find themselves. Landlords need to be more prepared to match their income expectations to tenants’ ability to pay, but landlords who are not prepared to renegotiate lease payments have remedies including forfeiture. If the apparent strength of the landlord’s position is such that the tenant is fearful of negotiation and the landlord finds himself with no prior warning of insolvency, he might consider whether such terms were in fact in his interests in the first place.
By questioning whether it is acceptable that “a contract entered into in good faith by both parties can simply be renegotiated when one side no longer likes the terms” the BPF is missing the point of turnaround, restructuring and insolvency. There are times when parties need to renegotiate to avoid failure of an agreement or what underlies it. By participating in CVAs, landlords demonstrate that they operate in the commercial world and will not cling to agreements that, although they were negotiated in good faith, have become unfit for purpose.