Newsroom

Outrage at office giant’s ‘insolvency’ threat despite having £200m in the bank

Landlords have today condemned moves by Regus, the serviced offices giant, to use insolvency practices to cut its rent bill despite being a perfectly profitable business.

The law allows for failing parts of a business to be packaged up into a company which can claim to be insolvent even if the parent company is fully functioning.

Regus – which runs more than 1,000 properties around the world - has demanded rent reductions and concessions from landlords of loss-making locations, as well as cash to carry out refurbishments. The plans could see around 30 of their 150 British-based locations being put into administration by the vehicles the leases have been specially moved into.

Regus is set to report on March 22 and a spokesman confirmed the firm had a cash position of £229.1m in October 2009 after solid trading across key regions.

Although their current position today is unconfirmed, their cash position is unlikely to have changed significantly since then, which would imply that the firm as a whole is not insolvent in any way.

Given this, it is unclear why the leases would not revert to the profitable parent company in the event of any vehicles set up to absorb leases going into administration. This could well be a future consideration for landlords.

However, there is no question over the fact that under current legislation the restructuring moves are perfectly legal and it is this flaw in the legislation which landlords are angry about. It will be a blow for the serviced office sector which has made major strides in recent years to improve its performance and image.

Unlike some other serviced office providers, rather than owning property, Regus leases its space from large office developers, many of whom are listed on the London Stock Exchange.

Landlords fear that refusal to agree to the terms – which also include rent free periods and future reductions – could see the loss-making leases put into administration, although the remaining parts of the business would continue. If the property industry and its shareholders refuse to bail out Regus then they would be left with no tenants and the associated empty rates costs to pay.

The BPF has condemned Regus for its cynical use of insolvency tools which were not intended to allow companies to pick and chose which parts of their contractual commitments they would like to walk away from in order to improve the profitability of their businesses.. Although not as high profile as previous insolvency deals by JJB Sports, Focus and Blacks, this is the first time the offices sector has been involved and the industry fears a precedent could be set if occupiers can simply walk free for legal agreements such as leases.

Industry sources have suggested that buildings let to Regus in the future could be priced down as a result of these kinds of moves, meaning landlords may be unwilling to have them as tenants as a result.

Liz Peace, chief executive of the BPF, said: “This appears to be a cynical move by a highly regarded company, and is the first time a part of the property industry has used such tools against the rest. Landlords are caught between rock and a hard place when it comes to bailing out occupiers at the expense of their shareholders or facing the prospect of empty space and the costs that come with it.

“The most galling fact here is that despite the cuts in margins Regus has obviously had to face in recent times, they have a strong cash position and a profitable business. All firms have suffered in the recession so why should the shareholders of property firms – many of whom are likely to be pension funds – be bailing out badly negotiated leases or underperforming parts of another’s business?

“We need to see the insolvency rules tightened up to stop this kind of abuse and landlords need to think about asking for some kind of clawback if they make concessions to enable them to obtain some benefit from the upturn when occupiers they bail out come back. Any firms looking to use these kinds of methods to restructure should remember that the industry is cyclical and what goes around comes around. They could find it difficult in the future to secure they kind of terms they want when landlords are in a position to get tough.”

Regus has confirmed the moves in a statement sent to the BPF this morning.

A Regus spokesperson said: "As we stated at our half year results in August the UK is the toughest business environment of our geographies. Like many other companies with operations in the UK we are seeking to regear a small number of leases. However we remain fully committed to our operations in the UK where we have approximately 150 centres. We will continue to grow our leadership position in the UK and are contracted to open six centres in the next two months."

Speaking at a Movers and Shakers breakfast yesterday at London’s Dorchester Hotel, Marks and Spencers chief executive and chairman Sir Stuart Rose condemned the cynical use of CVAs for giving failing retailers an unfair subsidy.

Notes to editors

Other recent abuses have included Clintons, who made a huge profit buying back Birthdays stores put into administration and Blacks Leisure which, last October, agreed a CVA with its creditors, principally its landlord, which allowed it to walk away from some of its leases in areas which it has since decided to re-enter on more favourable terms. CVAs have   become common practice among retailers struggling to pay rent and, whilst they are often the best way of dealing with potential retail insolvency, in some cases landlords believe they are being used as a device simply to allow retailers to get out of rental terms they don’t like – leaving landlords with empty properties.

For more information and all PR and media queries, please contact Andrew Teacher, Head of Media, on 020 7802 0113/ 07968 124545/ ateacher@bpf.org.uk