Assuming the Pizza Express company voluntary arrangement (CVA) follows the approach taken by other casual diners and retailers who have also launched CVAs recently, we can predict with some confidence what the Pizza Express CVA proposal might say.
Landlords will likely be grouped into different bands and offered new rent terms for the duration of the CVA, depending on whether the business judges the performance of each outlet as strong, weak or bad. Those in the worst performing categories may face being ditched altogether, whilst those in the best may see little or no change made to their existing lease terms, perhaps except for a compromise of any outstanding rent arrears.
For landlords, some of the key questions to consider are:
- How long does the CVA last?
- How do the proposed new rent terms compare to the existing contractual provisions?
- How are service charge and building insurance arrears and dilapidations being dealt with?
- Are any enhanced break rights offered and, if so, on what terms?
Many companies who have launched CVAs have sought to replace contractual rent provisions with a turnover model during the period of the CVA, or alternatively, a combination of contractual and turnover rent. In some cases, the turnover model might yield greater rent returns, but only if the business emerges from the COVID-19 pandemic in good shape – arguably unlikely, especially in the casual dining sector.
Landlords should also consider carefully how other non-landlord creditors are being treated in the CVA. Is there a fair distribution of suffering amongst all creditors, for example? Companies can treat creditors differently under the CVA terms, but that must be justified on the basis of fairness. If a landlord feels it is being unfairly singled out, or other creditors are gaining disproportionately well out of the CVA compared to others, there might be ways to challenge that.
More widely, landlords will want to understand the company’s long-term plan following implementation of the CVA. For example, they should consider whether a wider restructuring is being contemplated (as is the case with Pizza Express, which is expected to divest its Chinese business) and whether new stakeholders are likely to inject funds into the company. Given the wider negative business outlook right now, landlords will have to weigh up whether to reluctantly stick with the business or walk away by exercising any break rights offered by the struggling tenant as part of the CVA.
First published in CoStar News. Reproduced with permission.
Matthew Padian