Property FRI Leases
The principal reason for securing a CVA allows these ‘mega-retailers’ to excuse themselves of onerous property FRI leases.
Obviously, statute in insolvency is important, to ensure debtors can protect themselves using the laws of the land.
However, the recent use of a CVA by the brand new owners of TM Lewin to change their model completely. Going online-only, has left many landlords and suppliers ‘fuming’ (the polite phrase) and consequently massively out of pocket.
The demise in retail is well documented and the surge from there in terms of other commercial property issues.
Especially office space and gyms notably – two huge victims of the lockdown brings into play all businesses tied into such onerous leases.
FRI leases can be ‘brutal’ in their terms and conditions and are not fit for purpose in today’s world.
Most commercial tenancies are based on these FRI leases and are at best inflexible, “they are not fit for purpose”, revolves around the now ever-changing, fast-moving commercial environment we work in today.
The ‘mega-retailers’ can avail themselves of the provisions of The Insolvency Acts and use CVA provisions to clear their lease. SME’s cannot, however, usually take this approach because of the insistence of personal guarantees to support any lease granted.
If an SME therefore struggles, the biggest personal exposure could stem from the lease of business premises:
- be it retail,
- gym or,
- office in nature.
On the flip side, a landlord may have funded his property by way of traditional institutional funding linked inextricably to the FRI, upward on review 15+ year lease and to this end, therefore their hands are tied.
We are commenting on the landlord’s position next week. Covid-19 has obviously had a massive effect on property owners especially those supported with finance having various Banking covenants thereon.
We always try to ensure people facing any issues take action.
With this backdrop, as you can see from our graphic above, we are holding a webinar on 30 July 2020 and all are welcome.
If you face any debt issue call Bell & Company on 0330 159 5820