The way forward from the moratorium: Catering Today

 Laura McGuire

The latest lockdown is another devastating blow to the hospitality and leisure industries. Any help which the Government can provide is clearly welcome. But, for many hospitality and leisure operators in major cities, where annual rents can exceed £100,000 per annum, the latest grants amount to less than three weeks rent. For businesses that have been closed, in many cases, for almost a whole year, this is obviously not enough support to ensure businesses will survive.

Clearly, something has to be done. Any tenant who hasn’t already agreed terms with their landlord is going to owe a year’s rent on April first, on top of the pre-COVID 19 rent payable. With that in mind, there are four options that the Government could consider before the third lockdown ends in March

Do nothing

The Government could choose to do nothing. It has stated that the moratorium will end on the 31st of March, and it can stick to that. This will likely lead to the ‘burning out’ of the leisure and hospitality sectors, catalysing the creation of a glut of empty properties.

Conservative estimates suggest that even in prime locations, like Leicester Square, we could see up to 30% vacancy rates, as businesses collapse into CVAs, bankruptcy and liquidations, unable to pay a year of rent in one day. In turn this will see a hollowing out of the attractiveness of major cities like London as tourist attractions.

Extend the moratorium for a short period 

The Government could decide to extend the moratorium for a further period after the end of March and simply kick the can down the road. The excuse would be that the end of the moratorium was announced before the latest lockdown.

Although this would be a positive for operators, it would lump more pain onto landlords, and see them faced with the prospect of not having been able to collect rent for over a year. For many, this would place further strain on their ability to service loan agreements, which in turn could seriously impact Banks and other lenders.

Legislate a payment plan 

This is perhaps the most likely option. In this scenario, the Government would legislate so that the owed rent is paid back over an extended period of time. This would likely be a satisfactory compromise for most operators, landlords and bankers. Critically, it also keeps to the Government’s commitment not to extend the moratorium further and provides much needed certainty.

Although some businesses, which at this point are no longer going concerns anyway, will be unable to continue, the bulk could perhaps survive through this sort of intervention.  Some flexibility on the terms of pre-existing loans would be needed from bankers, and, in many cases, the regular income stream would allow for the sort of certainty that could encourage this.

Taking the draconian route 

A final option would be for the Government to institute a freeze on collection of outstanding rent and a mandatory writing down of the amount to be repaid, perhaps by 25% or more. With collection on 2020 rents deferred into 2022, tenants would be provided with an extended window in which to return to profitability and to negotiate further on their rent with the landlords.

This sort of intervention by the Government into the rental market is not unprecedented, the 1980s rent freeze being just one example, although again would place much of the pain unfairly onto landlords and their bankers.

Difficult decisions 

Whichever way the Government turns, it is facing difficult decisions around the moratorium, decisions that increasingly tenants, landlords, and the banks cannot afford to see kicked down the road. Eventually, there will be a reckoning. Until the Government chooses a way forward, all parties have to assume the moratorium will end in March.

Operators should negotiate with their Landlords now if they are going to survive and avoid facing the crippling impact of having to pay a year’s worth of rent at the beginning of April. And there needs to be an urgent realisation that in the post-Covid world it may be impossible to trade off old rent levels. The time for negotiation and flexibility is now.

Byline by Tony Lorenz founder of Lorenz Consultancy, a boutique commercial property consultancy.