Unprotected by Government Policy, London Restaurants Are at the Mercy of Landlords

The novel coronavirus outbreak continues to cast a terrible shadow over London restaurants: the majority of businesses are closed and wrestling with the practicalities of furloughing staff and accessing the Coronavirus Business Interruption Loan Scheme. Operators welcomed the announcement last week of a so-called forfeiture moratorium until at least June 30 2020, meaning that businesses unable to pay their rent due to the outbreak will not be at risk of being forced out of their premises. But with reports surfacing of commercial landlords applying hefty interest payments to rent deferrals and threatening bailiff action, business owners and industry bodies are imploring policy-makers to go even further to protect them.

UKHospitality, the trade association which formally represents restaurants, pubs, and bars, has written to the Ministry of Housing, Communities and Local Government calling for an immediate extension of the forfeiture moratorium for six months — therefore disallowing landlords from repossessing their property from tenants until at least the medium-long term impact of the crisis is better understood — and a widening of its scope to include some of the broader debt enforcement measures that landlords have in their arsenal, including winding-up orders (court orders that force insolvent companies into liquidation), statutory demands, and commercial rent arrears recovery (CRAR), which allows a landlord to take control of the tenant’s goods and sell them.

“The moratorium on evictions of commercial tenants announced last week does not go far enough,” wrote UKHospitality Chief Executive Kate Nicholls. “Rather than use this as an opportunity to work with businesses to investigate rent deferrals or waivers, many landlords have instigated, or threatened to instigate, actions that will cripple businesses and lead to a further loss of jobs on a significant scale.”

Nicholls described “reports of excessive interest payments applied to rent deferrals, as well as winding-up orders and bailiff action being threatened — at a minimum imposing extra cost to business and at worst threatening their ongoing viability.” She stated that UK Hospitality had also been made aware of funds being withdrawn from deposits and top-ups demanded in order to avoid lease terms being broken.

“Business as usual cannot apply at this stage,” she continued. “Yet, landlords are effectively signing a death sentence for many businesses that are just about keeping afloat. We need legal protection to buy time for under-pressure businesses. Otherwise, they will fold, and even more jobs [will be] lost.”

Last week saw the arrival of of the March quarterly commercial rent date, and some estimates put the proportion of tenants unable to meet their payment obligations at more than 70 percent. Operators’ experiences with landlords have varied wildly. Boxpark, for example, which has 75 traders across its sites, has informed them that they will not have to pay any rent or service charge for the duration of the closure period. “We sent a letter to them within an hour of the Government announcement [of the shutdown],” CEO Roger Wade has said. Network Rail, which owns many of the arches used by independent London food traders has similarly cancelled all first quarter rent for retailers in its commercial property portfolio, while Argent, which oversees the 67-acre King’s Cross estate, has done likewise (although it will continue to collect service fees).

‘If we have to pay that rent back, I don’t know if we can continue’

Operators with more than one site have often found themselves trying to negotiate with multiple landlords, with smaller, independent landlords generally proving more willing to negotiate terms and be flexible. Corazón’s Laura Sheffield, who opened casual spin-off Tacos Corazón in Westfield last year and was about to open a crowdfunding round for a third restaurant when the crisis hit, has experienced both ends of the response spectrum. “One of our landlords, the Poland Street [Soho] one, is probably the nicest in London — I’d go so far as to call him a friend,” she says, describing the constructive “long conversations” the two have had to try to find a temporary way forwards. “He’s lost a modelling agency, an architect… everyone has shut down. He has his own financial obligations, and I know he’d say ‘don’t worry about your rent’ if he possibly could. But it’s just not an option.”

Sheffield’s other landlord is Westfield. “As part of our lease we were obligated to be open and trading, in spite of the fact there was nobody there,” she says. “We were the first [to close] — we didn’t get permission, but we closed anyway. Then a few days later everyone else just started following suit.” Westfield, she said, has offered to defer their rent payments for three months, “but I see that as an opening offer. I mean, Westfield is closed, how can you be charging me rent? There’s no turnover.” She fears that, with even successful restaurant margins being so small, “if we have to pay that rent back, I don’t know if we can continue.”

‘The buck has to be passed up to the banks’

A huge issue is the fact that government-approved “mortgage holidays” haven’t yet been extended to commercial mortgages, leaving landlords facing daunting financial obligations of their own — something Malaysian hot-spot Sambal Shiok’s chef-owner Mandy Yin, who opened Nasi Economy Rice further up Holloway Road just days before the crisis started gathering pace, points to as a fundamental issue that needs resolving as swiftly as possible to avert catastrophe.

Like Sheffield, she has two different landlords. “One is a private individual based overseas, the other is a Jersey-based company,” she explains. “I said to them, I’ve had to close my restaurants, I have no income right now, what can you do for me?” She says she was hoping both would grant her a rent holiday, but while they didn’t go that far they “have agreed for me to pay monthly rather than quarterly for the time being,” which means she would not have to front three months of rent at once. “I just have to wait and see what happens when April 25 comes around, and what other support the government has been able to provide,” she says. “The buck has to be passed up to the banks. If they are able to suspend the landlords’ mortgages, hopefully that will trickle down the chain to us. But of course the banks aren’t just going to offer that.”

‘It just means they can’t change the locks’

What else can be done concretely? Many operators are concerned that June 25, when the next quarter’s rent is due, will come around fast. One London restaurateur, who spoke to Eater off the record, echoed UK Hospitality in their belief there are two key things the industry needs at the moment: an extension to the lease enforcement moratorium from three months to at least six months, and a moratorium putting the brakes on all forms of debt enforcement for the same length of time.

This, they believe, would protect everybody (including landlords with debts of their own), as well as allowing for more time to find longer-time solutions to the issue of the changing hospitality landscape, rather than simply focusing on short-term survival. Yin, too, would like to see the scope of the forfeiture moratorium broadened, too. “At the moment it just means they [landlords] can’t change the locks,” she says.

The novel coronavirus pandemic has shone an unforgiving light on the fundamental structural and power issues that beset the London commercial property world, where most leases work heavily in landlords’ favour and require almost nothing from them in return.

“Many landlords have not maintained true relationships with their tenants, showing little interest about how affordable rent has been for them,” says David Abramson, chief executive of the Cedar Dean Group, who has worked with high-profile Mayfair restaurants like Nobu, Novikov, and Cipriani providing commercial property advice. He urges landlords to adopt a less passive stance by working to understand “how your tenants are going to survive this and how can you be a part of their survival”. Any landlord who believes that turnover will revert to normal after tenants reopen is, he says, “simply delusional”.

It seems likely that the weeks ahead will bring the announcement of further pressure-easing measures by the Treasury. But for Sheffield, the most testing times for London restaurants may well still be to come. “The scariest part for me is the idea that the U.K. will start to return to some form of normality that involves social distancing or a lack of consumer confidence with people being afraid to go out,” she says. “London restaurants are built on packing it out — when the number of covers drop, if you aren’t seeing concessions that’s when places will go bust.”

Do you work in a London restaurant? Let us know how the novel coronavirus outbreak has affected you.