JJB warns of financial breach - a threat to the CVA model?

JJB warns of financial breach Online Property Week
This was the headline which is sending shivers down the backs of Landlords across the country whether or not JJB is actually a tenant of theirs for a number of reasons.

1. JJB, whilst not a bell weather for the retail sector per se, is a large enough retailer that if it is failing to perform it is indicative of issues in the market generally.
2. JJB, utilised a Creditors Voluntary Arrangement (CVA) to much fanfare in 2009 - one in a line of large retailers to do so.  At the time I considered the reasons why one CVA is successful whereas another is not.  Now that the outcome of that CVA is not looking positive Landlords may be concerned regarding the other CVAs which they approved.

As a real estate restructuring lawyer the potential failure of JJB to turn itself around despite the CVA creates an interesting dimension.  The whole argument of a CVA is that the creditors overall will get a better deal than if the company entered administration or liquidation.  Creditors are asked to forgo a proportion of their debt and/or agree revised payment terms in order for the company to continue trading.

For landlords the deal has always been a difficult one.  In a retail CVA there are always some properties the company wishes to exit and the landlord is forced to decide between accepting a liquidated damages offer or taking its chances in an insolvency.  It seemed that JJB (and others like Focus DIY and Blacks Leisure) had managed to work out the correct level of compensation to pay landlords to get them to agree the CVA.

However, if companies that have been through CVAs begin to fail again a couple of years later landlords are going to be left asking themselves whether the problems facing the company where not really the leases but rather the management or the business itself.  Bearing in mind the cost to landlords of considering the CVA terms one wonders whether some will come to the conclusion that it is just not worth it and refuse to back CVAs in the future.

Only time will tell but for now anyway, all JJB's landlords are not sleeping quite so soundly at present.

Redefining the landlord and tenant relationship - back to being radical again

In July 2009 I wrote a blog about how we need to be more radical in relation to Commercial Leases and the Commercial Lease code (see Commercial Lease Code: Let's Be Radical).  Therefore I was most interested to read a Property Week interview with Lawrence Hutchings, Hammerson's managing director UK retail in last week's Property Week in which Lawrence clearly argued for action to be taken "to satisfy both retailers and global investors in the UK retail property arena".

Lawrence specifically makes mention of how landlords negotiate with tenants and expressed a clear belief that "Changes in the landlord and tenant relationship will be structural".  Indeed Hammerson has altered its own internal structure to improve its relationship with tenants by delivering better service performance.

I continue to hold the view that creating an industry standard lease for lower value and/or smaller units would further help improve the landlord and tenant relationship.  It would reduce deal times, deal cost and deliver certainty for both parties.  I may be doing some lawyers out of work but, as I always say to my client, my job is to identify the best way for you to achieve your commercial objectives.  If there is a cheaper and quicker option that is the route my client should take even when the result is little or no work for me.

Anyone else interested?  Please let me know.