Saturday 12 September 2020 1:29 pm

New Look to warn landlords it could collapse without further rent cuts

New Look will warn landlords next week that it could go bust if it isn’t granted further rent cuts.

The high street brand has almost 500 stores across the UK and employs more than 12,000 people.

Read more: New Look launches restructuring plan to to slash rents

It is set to propose its second company voluntary arrangement (CVA) within two years after its sales suffered as a result of the coronavirus pandemic.

The fashion retailer is proposing to pay rent at 400 of its stores based on two to 12 per cent of its turnover, rather than fixed monthly or quarterly charges.

It will argue with its more than 300 different landlords that this is the fairest way to share risk amid the current uncertainty.

However, the property owners are not keen on the proposal, according to the Financial Times, with several arguing that it goes way beyond the normal remit of the insolvency process.

One landlord said it would set a dangerous precedent as it did more than just provide temporary relief, while another told the FT it ought to be based on affordability rather than guesswork.

Chief executive of the British Property Federation, Melanie Leech, said any structural change to retail leases must be “underpinned by transparency and fairness, not as part of an underhanded attempt to exploit a legislative loophole to simply get out of leases freely agreed and signed by both parties”.

New Look said its offer gave landlords opportunity to take stores back if they felt would receive higher rent from another tenant.

More than 80 per cent of stores in the CVA have a break clause within years, which would give New Look the opportunity to close stores should they no longer be viable.

The retailer’s sales fell by more than 30 per cent in March year-on-year and have been down almost 40 per cent since stores were allowed to reopen after lockdown.

Read more: New Look urges landlords to back restructuring plan after failing to find buyer

Its debt stands at around 10 times more than last year’s underlying earnings, the FT reported.

New Look closes 60 stores as part of its previous CVA, while landlords took back a further 75. The company denies it has plans to make further closures.