Landlords fear Atlantic case will set precedent
IRELAND'S commercial property sector fears that the examinership of the Altantic Homecare group could set a dramatic new legal precedent which could end up costing big landlords everywhere tens of millions.
It is feared that a successful outcome for the examiner in the Atlantic case -- in which the group is set to close five outlets and divest itself of the leasehold commitments -- would open the way for other retail groups to use the examinership system to dispose of expensive long leases and to selectively shed less profitable stores.
It is claimed that a successful outcome for the examiner would pave the way here for a practice that has recently become known in the UK as "prepacked administration" -- and which would ultimately lead to devalued rents, diminished leases and falling property values across the board.
The examinership of the Atlantic Group is unusual insofar as its parent company, Grafton Holdings, is a profitable entity. Grafton Group also owns the Woodies chain, which has put the the 13-strong Atlantic Group into examinership.
In the last 18 months most of the stores in the Atlantic Group have been rebranded as Woodies outlets. Now, the examiner is seeking to close a five-store cluster within the Atlantic group, which includes all the remaining Altantic outlets.
Because the parent company is profitable, some are claiming that this is Ireland's first major example of "prepacked administration" -- use of the insolvency system to allow a profitable parent to shed unprofitable outlets and expensive lease commitments while maintaining its other, more profitable outlets.
The examinership case will ultimately determine whether Atlantic can walk away from five long-term rental contracts for those outlets which are earmarked for closure. In the most recent hearing on the case, NAMA (protecting its interest in one of the outlets) secured an agreement in principal with the examiner to consider drastically reducing the rent as an alternative to its closure.
Market sources believe the total hit for the five landlords in the event of a mass closure will be €60m -- which includes rent losses and the resulting capital devaluation to the properties -- estimated at around 30pc.