How Does a CVA Affect a Landlord?

A company voluntary arrangement or CVA is an agreement made between a company and its creditors to facilitate debt repayment over time. From the outset, a CVA is primarily beneficial for the company and secured creditors. However, it can be unclear how a CVA can affect the rights of a landlord and the status of their lease with the company. This article will examine the impact of a company voluntary arrangement on landlords, namely whether the arrangement itself can terminate a lease and whether a landlord has the right to terminate a lease.

Can a CVA Terminate a Lease?

As a part of the CVA process, an insolvency practitioner is hired to review a company’s operations, with the purpose of drafting a proposal to creditors. The insolvency practitioner can propose changes to the company’s operations, including changes to any leases that the company is party to. These changes won’t inherently terminate a lease, but suggest changes to the terms of the lease, such as decreased rent.

In recent years, several cases have tackled issues surrounding the rights of landlords, where their tenant is a company entering a CVA. Amongst other decisions, it was found that landlords were not entitled to rent that matched the market value of the property. Therefore, the CVA could propose a value that is below market value.

Such an arrangement could be unfair to the landlord. Therefore, to balance this proposal in a company voluntary arrangement, landlords are given an option to terminate upon review of the CVA. The landlord is given the choice to accept the reduction of rent and any other new terms to the agreement, but their agreement won’t constitute a surrender or mutual agreement to end the lease prematurely. Conversely, they can exercise their option to terminate and end the lease. Although this option is not a requirement, offering this option to a landlord during the CVA process will hinder them from pursuing legal action for unfairness in the future.

How Does a CVA Affect a Landlord’s Ability to Terminate a Lease?

As stated, a CVA can stipulate changes to a lease, including the payment of rent that is less than market value. Depending on the circumstances, a landlord may decide to end their lease with the company or continue the lease under the new terms.

In considering which option is better, one may ask what is the impact of a company voluntary arrangement on landlords? Despite a company voluntary arrangement, landlords will maintain the proprietary rights to their property, and can continue to exercise their rights in that capacity. Therefore, if there is a breach of contract on the part of the company, the landlord can still exercise their right to forfeit or end the lease early, based on the terms of the rental agreement.

A company voluntary arrangement can affect every creditor that has a contract with the company. However, every creditor doesn’t have the same level of protection. Whether as a landlord or tenant entering a CVA, the insolvency professionals at Irwin Insolvency have over two decades’ experience ensuring a favourable outcome for all sides. Contact us by phone at +448002545122 or via email at mail@irwinuk.net.

More advice on Company Voluntary Arrangements from Irwin Insolvency

The complete guide to Company Voluntary Arrangements
How are employees affected in a CVA?
Can company voluntary arrangements save the high street?
Can you still trade under a company voluntary arrangement?
Dealing with redundancy to employees during a CVA