Regus angers landlords with insolvency threat

Published 12th Mar 2010

• Landlords accuse Regus of exploiting insolvency loophole
• Regus looks for agreement on package of rental cuts


A simmering row between some of Britain's largest landlords and Regus, the biggest provider of serviced offices, broke out today after the company threatened to put parts of its business into administration unless it reached agreement on a package of rental cuts and other concessions.

The British Property Federation, representing landlords, said it was outraged at the company's behaviour and accused it of using a loophole in insolvency rules to strong-arm landlords into accepting rental cuts.

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."

Over recent months Regus, which operates 150 serviced offices in the UK and 1,000 around the world, has told several landlords that operate fixed leases it wants to cut the costs of unprofitable offices. It asked for cash to carry out refurbishment works, periods without any rent and a cut in future rents.

So far landlords have rejected the plans, pointing out that Regus was a highly profitable company with plenty of cash in the bank and could afford to honour contracts signed in good faith by landlords.

But the threat of some Regus offices going into administration has spooked the industry, which fears other firms could use rules allowing them put loss-making divisions into administration.

The plans could see about 30 of the 150 British-based locations becoming insolvent, leaving landlords without a tenant, if they did not agree to the terms.

Regus is set to report on 22 March and is expected to show a cash position of £229m in October 2009. The BPF said the cash position was unlikely to have changed significantly since then, "which would imply that the firm as a whole is not insolvent in any way".

Talks with landlords were ongoing, said Regus. "The UK is the toughest business environment of our geographies," a spokesman said. "Like many other companies with operations in the UK, we are seeking to re-gear a small number of leases. However, we remain fully committed to our operations in the UK. We will continue to grow our leadership position in the UK and are contracted to open six centres in the next two months."

The use of insolvency has become common among retailers struggling to pay rent. JJB Sports, the DIY retailer Focus, and Blacks Leisure have all run up large debts with landlords, which were written off after the firms were put into administration. Insolvencies can also leave landlords with empty properties.

"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," said Peace. "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."

Source: ' Guardian '

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