#Unitedwestand

The Government needs to act on rent or face the end of hospitality as we know it

By Paul Wigham

- Last updated on GMT

Rent reaction: All Our Bars chief executive Paul Wigham outlines what steps he believes the Government should take on pub rent
Rent reaction: All Our Bars chief executive Paul Wigham outlines what steps he believes the Government should take on pub rent

Related tags: Rent, Public house, Beer, Coronavirus

The Covid-19 outbreak has been a catastrophe for all rent-paying ‘bricks and mortar businesses’ according to All Our Bars chief executive Paul Wigham who sets out what he believes the Government should do next.

This is an unprecedented situation where actions taken by all parties have been exceptional. The Government, in particular, has acted decisively in a scenario where the pressures must be enormous.

Yet, all bricks and mortar businesses paying rent are in a state of catastrophe by any pre-Covid 19 measure.

Firstly, the £51,000 rateable value grants scheme​ threshold is too low. It excludes the businesses that employ the most people. Many are calling for £100,000 limit but I am not even sure that is the right number if the shutdown goes on past April.

Our business is not the biggest but we have effectively laid off more than 120 people under either the Government’s promised Coronavirus Job Retention Scheme​ (CJRS) or at our own cost. At any rate, the cash flow stress is definitely ours until support comes either from business grants or CJRS. 

Bank support may yield help but the Coronavirus Business Interruption Loan Scheme (CBILS) still requires banks to take 20% of the risk in very uncertain times. As one banker told me last week, they and public shareholders are not in the business of throwing their own money at businesses that were in difficulty already.

Ill-advised comments

The majority of pub freehold owners have benefited from low interest rates for more than a decade and ever-growing values for even longer than that. 

In the hospitality sector, specifically, some of the rents charged have been horrific due to a cocktail of the naivety of unadvised tenants, failure of the Royal Institution of Chartered Surveyors’ (RICS) valuation system – whose measure is effectively evidence of the best local comparable rent of a (usually unadvised) tenant – and general market froth and greed.

Through no fault of anyone, most businesses are falling apart and unemployment from hospitality alone will rise by around 1m in the short term. Children are having their education disrupted and people are struggling to pay for food and rent. This is not just a blip while we are closed. It will be a feature for some time to come.

The majority landlord approach, with notable exceptions, is that we signed an agreement for permitted use of their premises and need to pay rent to make sure their income does not change or decrease. During the shutdown, the ‘kinder’ ones say they can wait for their full payment and we can either use Government money to pay for it or leverage ourselves to pay them and maintain the value when the rest of the world faces economic disaster. 

There seems to be a total lack of empathy for the humans and the businesses around them and it is against that backdrop that the ill-advised – perhaps insulting – comments from the British Beer & Pub Association​ in the The Morning Advertiser ​drove me to put pen to paper.

BBPPA

People will be the main losers 

Keeping pubs open is not cost free. We will receive some grants – many will not – but that will be used to fund continuing costs across our estate. We have a large amount of written off uninsured stock and have to make provision for reopening costs, when the overhead moves to near 100%, but the initial sales in the first six months are unknown and likely well below pre-Covid-19 levels.

My fear is that the Government has brought in about £300bn of measures to protect jobs and businesses that could be wasted. Staff will get some of this but the landlords are often demanding the lion’s share in an attempt to save their own value. When the support money runs out – and who knows how long the crisis will last – many retailers will simply refuse to borrow to pay unhelpful landlords and will lay off even more staff or wind up the business. This has started already with ‘household name’ casualties including Carluccio’s and Debenhams.

Some retailers and operators will disappear forever, some will just restart on lower general rents and carry on after, but people will be the biggest losers.

The consequence will be that property companies will eventually lose money but only after collecting Government support from the very ‘employer’ businesses that Government was trying to protect. This could render Government help a total waste of public money because it hasn’t achieved what it set out to.

This doesn't just apply to hospitality – retail is in the same place and office-based businesses face similar problems, while there are calls for major help to protect the large high streets firms from issues which will be landlord-related.

Next steps for Government

As mentioned, the Government has my admiration and sympathy given the issues and stresses it’s having to deal with but, in my opinion, it needs to do the following:

  • Remove the option for landlords to take steps to recover rent debt by way of statutory demand or insolvency proceedings – that is not the same as the forfeiture protections brought already implemented
  • Bring in immediate legislation to waive rent during the complete or partial lockdown of trading businesses. Such an event not to be grounds for forfeiture, statutory demand or insolvency
  • Provide for a proportion of that waived rent to be recovered over a period of deferment. My sense is that the number would be 20% but that is based on feeling not science. More intelligent people than me can work that out
  • Provide for stepped rent, post reopening. Start at 50% Q1, 60% at Q2, etc
  • Legislate for upward and downward clauses on all leases, making upward only leases illegal. It is inevitable after this crisis that rents need re-basing and there is no mechanism in current legislation 
  • Extend Government grants to landlords to partially cover the costs of the rent waiver
  • Provide further guaranteed support permitting the banks to cover any cash shortages in property companies by extending lending, alteration of covenants, for example. In other words, they can leverage and add the losses on to the end of their funding periods instead of the tenants doing it
Government

Some will protest on the basis that there is no ‘one-size-fits-all’ solution but, unfortunately, this is a crisis situation and one size will have to do – same as the other support provided by the Government so far.

The real difference here is that the property companies all have freehold assets with far more definitive value than a retail business with a lease undertaking to pay rent – which can be a liability even outside of the current situation. 

The covenant value is stronger so there is far less chance of guarantees being called. Effectively, all this does is extend the funding/mortgage period on a high-value asset. 

If the Government does not act, there will be wasteland high streets, vast numbers of disenchanted unemployed with associated social issues, highly reduced tax receipts from non-trading businesses and no hospitality business as we once knew it.

Related topics: Legislation, UnitedWeStand

Related news

Show more

Follow us

Pub Trade Guides

View more

FREE EMAIL NEWSLETTER

Subscribe to The Morning Advertiser

The definitive voice for the pub trade

Get the latest news, analysis and insights from the uk pub sector straight to your inbox!

Listen to The MA Podcast