The Biggest Existential Threat to Restaurants Remains Unresolved

If restaurants are to recover from the impact of COVID-19, then the government must act on the reality that the majority of businesses will not be able to pay rent for rest of the year, the official trade body representing the hospitality industry in the U.K. said today. In a letter to Business Secretary Alok Sharma, UK Hospitality chief executive Kate Nicholls is urging the government to intervene and broker a solution between tenant and landlord “that solves the current stalemate on rent in the sector.” Without it, the trade body warns, there will be millions of job losses and business failures in the months ahead.

The rent relief measure put in place by the government at the start of the pandemic is due to expire at the end of June. As it stands, businesses will be legally obligated to commence paying rent despite the fact the government has said that the very earliest restaurants could reopen is 4 July. In reality, most in the industry expect that it will be much later for the majority of restaurants, pubs, and other leisure spaces which rely on high footfall and operate with close interaction between staff and guests.

To date, the government’s strategy has to been intervene as little as possible in the medium- to long-term, instead urging tenants and landlords to work together to find solutions. UK Hospitality says this is insufficient and that the “commercial property market is effectively broken,” citing a recent survey of business leaders from CGA and Fourth, which pointed to rent payments and securing landlord agreements as the top priority for 67 percent of respondents. Mutually exclusive self-interest is currently making an equitable solution impossible for many.

The letter asks the government to “urgently step in to broker a solution at a high-level ministerial summit,” and is based on five principles:

• All relevant stakeholders must be involved — tenants, landlords, and investors from all areas of hospitality — and that the resolution should be based on collaboration, with government moderation.
• All stakeholders — tenants, landlords, investors, and the government — must acknowledge that there is a “sharing of the pain,” that it will cost them all to save them all.
• Financial and legislative government intervention is necessary — for example, an extension of the forfeiture moratorium (businesses unable to pay their rent due to COVID-19 can’t be evicted), and further loans and grants must be forthcoming.
• The government must operate on the assumption that the vast majority of hospitality and leisure businesses will not be able to pay rent for the rest of 2020.
• Urgency: a resolution must be found and acted upon before the next quarterly rent date at the end of June.

Commenting on the need for action now, Nicholls said: “In June, sector businesses are due to pay nearly £800 million in rent, having been forcibly closed and generated no income for over three months.

“We appreciate that landlords have their own financial pressures and the majority ... have been happy to work with tenants to find solutions, but a damaging minority continue to put pressure on beleaguered hospitality businesses at the worst time.”

The last government intervention came in late April when it announced an enforcement moratorium, a measure designed to blunt the means of aggressive landlords and remove the recourse to the threat of eviction. At the time, most in the industry recognised it was not enough. Today, UK Hospitality’s letter says that businesses are still being aggressively pursued with court orders, winding-up petitions, and having deposit funds taken, even if it is “by a minority of landlords.” All restaurants need more assistance; landlords, too, need protection from their own liabilities — banks and investors.

Moreover, the letter says that while some landlords have offered rent deferrals, that “will just lead to an accrual of debt which will be incredibly hard to pay back as hospitality businesses will be trading below normal levels for the foreseeable future.” For that, reason, the trade body has joined pressure group Hospitality Union in calling explicitly for a “National Time Out”, in which the government sanctions a nine-month rent-free period for tenants and landlords’ loan and interest payments are postponed for the same length of time.

“Having discussed this issue with a vast number of industry bodies, it’s clear we need a National Time Out on rent as the vast majority of hospitality and leisure businesses will simply not be able to pay for the rest of the year,” Nicholls said. “The Government must step in quickly to help hospitality businesses, landlords and investors find a mutually beneficial solution...with the government acting as honest broker.”

Nicholls concluded by saying that the threat of no action is that everyone loses out: “If the commercial rental market collapses, it will be to the long-term detriment of the whole economy and lead to millions of hospitality workers losing their jobs and swathes of businesses permanently closing their doors.”

• Protecting Restaurants From Eviction Is ‘Not a Solution’ to Their Problems [ELDN]
• Restaurant Industry Asks Government for 9-Month Rent Holiday to Stay Afloat [ELDN]
• Unprotected by Government Policy, London Restaurants Are at the Mercy of Landlords [ELDN]