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Primark seeks rent cuts in response to rivals' CVAs

Lauretta Roberts
28 July 2019

Primark is seeking rent cuts of up to 30% from landlords in a bid to level the playing field with retailers who have used CVAs to reduce their rent bills.

The value fashion retailer is reported to have approached landlords of stores with years left to run on their leases to say that they will extend the leases and pay for store refurbishment costs if the landlord agrees to the rent cut.

One landlord told The Sunday Times that Primark had been "hacked off" that a number of large retail chains had secured significant rent cuts by entering into CVAs, such as Sir Philip Green's Arcadia Group, New Look, Debenhams, Select and Monsoon Accessorize.

Arcadia faced strong resistance from landlords to get its CVA approved. An initial vote on a proposed deal was delayed at the 11th hour as the group scrambled to sweeten the deal for landlords by agreeing to more investment and reducing the rent cut demands.

Arcadia was also obliged to offer landlords a stake in the business, which could be realised when it is sold, and Monsoon Accessorize was obliged to offer a share of future profits to get its deal voted through as landlords took an increasingly hard line.

Primark is not the only retailer to hit out against the use of CVAs to reduce rents. Next has sought to introduce a "CVA clause" into its lease agreements stating that if its rivals secure rent cuts via CVAs in any of the locations in which it operates stores, then it too would require the same reduction.

Sports Direct chief Mike Ashley has also criticised the use of CVAs to cut rent bills and other costs. In a wide-ranging commentary released alongside the group's delayed annual results on Friday, Ashley said: "CVAs now seem to be being used carte blanche to penalise creditors and landlords and by extension lead to the more successful retailers subsidising the rotten ones."

Ashley has secured favourable deals on a number of House of Fraser stores, having acquired the collapsed department store out of administration last summer. He admitted on Friday, however, that the troubles at the retailer had been far greater than he had expected and in hindsight would probably not have done the deal. For some stores he has agreed zero rent deals for a period but, despite this, certain stores remained unprofitable meaning more closures are likely. He had initially hoped to save almost all of its 59 stores.

CVAs are a form of insolvency that allows companies to pay creditors back an agreed portion of any debts over a period of time. To get a CVA through companies must secure the approval of 75% of shareholders by value. For larger retailers the landlords are typically the most powerful creditors meaning their buy-in is crucial to win a vote.

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