I read with interest the report by the Insolvency Service last week that, having analysed outcomes for landlords in CVA proposals, it has concluded that landlords are more or less equitably treated compared to other unsecured creditors.  This was met with some degree of scepticism by the property industry, with Melanie Leech, chief executive of the British Property Federation, saying that she "did not understand" the main conclusion in the report.  

The headline figures in the report seem pretty stark:  in the sample of 59 CVA proposals, landlords were compromised in 93% of cases, compared to the next largest category of creditor (inter-company creditors) at 51%.  This is a significant finding and reflects my own experience of CVAs, in which all but a very small number of landlords, fortunate enough to own the premium retail sites, will suffer significant reductions, not just in the amount of arrears owed, but to the mechanics of the lease going forward.   The wide flexibility available to a company proposing a CVA is the very thing that makes the comparison analysis difficult, as the Insolvency Service itself admitted.  It acknowledged that only rent reductions for the duration of the CVA were included in the analysis, with rent/service charge arrears, new turnover arrangements and dilapidations compromises not being reflected:  "Therefore, the overall rate of compromise in relation to landlords is likely to be understated."  This seems a major Achilles' heel in the report's conclusions.

Most creditors are asked to compromise an existing and immediately quantifiable debt.  Landlords, on the other hand, face changes to the level of existing arrears (both rent and service charge), rent payment frequency, future rent reductions/turnover arrangements, a drastic (often total) reduction in the value of their anticipated dilapidations recovery, and the option for the company to terminate the lease at short notice.  All these factors impact on the value of the asset from the landlord's perspective. In practice, the new arrangements also place significant administrative burden on the landlord's agents, such as the frequent chasing needed when turnover statements are not provided.

There were some useful recommendations, however:  the report noted that CVA proposals are often unwieldy and unnecessarily lengthy documents, which ought to be simplified.  This would indeed be most useful for those of us faced with these documents, which are often poorly drafted and so complex that the various mechanisms do not interact properly with one another. The recommendation for earlier consultation with key stakeholders is also a sensible one - landlords often feel that when they are presented with a CVA proposal, it is a 'done deal'.  The time to influence the outcome is in the pre-proposal stages.  With Covid tenant protection measures now mostly lifted, we are likely to see a resurgence of tenant insolvencies, so it will be interesting to see whether insolvency practitioners heed the Insolvency Service's advice.