Over a five-decade career advising and negotiating on behalf of restaurant tenants on rent reviews, lease renewals, acquisitions and disposals, as well as deferments and rent-free periods, including all of the major recessions since 1974, I thought I had seen it all.
Clearly, I was wrong.
Following the onset of the coronavirus pandemic, our work supporting our hospitality clients began in earnest in early March, when an operator called me saying he had only taken £12,200 that week – down from £160,000 in a normal week. His questions were simple: how would he pay his landlord his rent? How would he be able to carry on?
Following rapid Government support, the restaurant industry is now asking whether they will extend the moratorium where landlords cannot enforce action beyond June.
Government assistance so far has been welcome, but efforts to date will not be enough to see all through this crisis. An overwhelming majority of our restaurant clients think it will take to June 2021 at the earliest to return to profit, not least as a result of the ongoing social distancing restrictions.
For many, their property and further Government support will hold the key to survival.
Rent deferrals are not enough
The initial response from many landlords,
during the two months of the moratorium, is that current operator issues are not
really their problem, although many are offering rent deferrals and monthly
This response simply ‘kicks the can down the road’ as it doesn’t solve the underlying problem, and as a consequence even some of the biggest names are pondering on whether it is worth struggling on until 2021/21 just to pay back their deferred rent.
Clearly, there are a raft of choices available to the tenant, including: pre-pack administrations, CVAs and even liquidation (none of which we want to see). However, it’s essential for operators to remember that most landlords want to keep their existing tenant in place for when the curtains come back up, although many won’t admit it.
Sensible landlords will be willing to negotiate, and it’s essential to be emboldened by this and push hard for rent-free periods and lease restructuring deals affording the maximum chance of survival.
Role of Government
One of the dangers of reopening the sector in July is that it will send a dangerous signal to landlords, and investors, to begin expecting rent again, which most restaurants will not be able to repay, of course.
So, in conjunction with plans to reopen, the Government needs to urgently extend the moratorium on aggressive rent collection, until at least September, to provide valuable time to enable negotiations in hand to continue. Lobbying your local MP for an extension may help achieve this – time is of the essence.
In addition, the Government should put pressure on landlords’ bankers to recognise that if they want to keep the tripartite relationship between the respective groups, they have to share some of the pain – providing landlords with greater flexibility.
The Government could also back the British Property Federation’s “Furloughed Space Grant Scheme”, which would give struggling tenants who had seen their income slashed by the coronavirus, a grant with which to pay rent, amongst other fixed costs. It’s highly unlikely that the Government would cover all rents, but any support would be welcome. Moreover, if the BPF, whose members comprise some of the largest landlords in the UK, are asking the Government to help, then they should advise their landlord clients to share the pain and address their bankers to help as well.
There are a host of other campaigns underway to support the industry, which include ‘National Time Out’, seeking a nine-month pause on rent payments, and ‘UK’s Grand Outdoor Summer Café’, calling for streets to become al fresco dining spaces. The more signatures and engagement they amass, the better the chance of restaurant operators gaining rent-free periods, as well as outside trading where possible.
The Government has shown that it’s open to exploring various options to support the industry, with the latest being a comment from Boris that they are considering reducing social distancing requirements from two metres to one for the hospitality industry. As the Government looks set to bring the sector out of lockdown in July, action is needed sooner rather than later.
We are heading for a new and unpredictable world for the restaurant industry. It is critical that the industry comes together collectively to find solutions to help operators through the crisis, and the Government need to play their part too. Whilst I am optimistic, there is a long way yet to go.
Anthony Lorenz, Founder of Lorenz Consultancy, a leading boutique commercial property consultancy, advising many of London’s leading restaurants, clubs, bars, and casinos, and other hospitality businesses.