According to reports Paperchase has been asking landlords for rents to be set by turnover as part of the restructuring plans. This is in order to avoid a CVA which would see it vacate a large number of stores. It has been said that the landlords are very open to the idea.
Company voluntary arrangements have become increasingly popular with retailers as a way to slash costs and vacate loss making stores. CVAs have become more targeted at landlords who have understandably felt that they are being prejudiced against and other creditors are treated better. They have threatened to challenge certain CVAs and indeed had House of Fraser not gone into administration they would have had their day in court. In House of Fraser’s CVA proposal many suppliers were simply paid in full on the understanding that they would support the CVA. 75% by value have to agree so all creditors are bound.
Turnover rents are controversial in that it allows a poorly performing retailer to get a better deal than an equivalent business that is doing well. Also, turnover does not equate to profit. Where they tend to work is in shopping centres where the landlord owns the whole shopping area, high street if you like, so they have certain influence over the number of people who come there with advertising, tenant mix, attractions, parking etc. It is more of a partnership of landlord and tenant. The costs of administering turnover rents is high in that the retailer has to submit accounts etc and it does rely on trust so they have fallen a bit out of favour.
Will we see their return? Given the pressures on the High Street and the need for Landlords to have income from their property then they may be an alternative to just vacating stores. As always it is a negotiation and it depends on the willingness of the parties to strike a deal.