Vital That Pubs Work Together with Landlords

By Alan Hamblett, Par tner at Shakespeare Mar tineau (www.shma.co.uk)

There is no doubt that the hospitality sector has been put through the wringer over the last few years, with the to-ing and fro-ing between lockdowns during the Covid-19 pandemic battering the industr y s ability to operate Many in the sector sadly had to shut their doors for good after a cease in cash flow impeded their ability to pay creditors

The industr y is in a much better place now with customers returning after the pandemic , but a perfect storm of surging operating costs amidst the cost-of-living crisis and staff shor tages as a product of Brexit has pushed many back into the red – and with this in mind, it’s vital that pub operators work together with landlords to ensure that they can weather the storm

The commercial rent code of practice that was published by the government during Covid outlines how responsible landlords and tenants should best work together during tough financial times The foreword says that "Government has always been clear that tenants who are able to pay their rent in full should continue to do so whilst those businesses that cannot pay in full should communicate with their landlord and pay what they can Landlords should also provide suppor t to businesses if they too are able to do so "

In the pub sector historically there may have been an element of mistrust between landlords and tenants based on inequality of bargaining power and fairness, but it’s essential for the sur vival of many in the hospitality sector that landlords and tenants should cooperate to their best abilities

Tenants must explain what financial help they have obtained and what they have done with it

Concessions can be made by landlords where they "reasonably" can, taking into account their own financial commitments and all the information provided by the tenant which should be treated sensitively and confidentially, about the financial impact of restricted trading In cases where concessions are refused by the landlord, it’s important for the landlord to explain openly to tenants why they are doing so These concessions could involve a rent free period for example Other options could include a deferral of rent, payment monthly rather than quar terly, or waiver of interest on late payment

It’s vital that any variation to the lease should be confirmed legally in writing, so do speak to your solicitor if in doubt It should be also be confirmed in writing that any rent concessions will terminate automatically if any proposal for voluntar y arrangement is put forward The voting rights of the landlord will then be by reference not the reduced amount, but to the full amount

It’s also impor tant to prepare for the worst cases where agreements can’t be made and rent debts require enforcing Where the premises have been sublet by the tenant, it is possible to ser ve notice on the subtenant, ensuring the rent can be paid directly to the superior landlord

As a last resor t, forfeiture is now an available option again on the basis of non-payment of rent It all depends whether landlords wish to maintain a long commercial relationship, or whether their own immediate cash flow is the priority If the tenant’s business is simply not viable and if the landlord is able to re-let quickly, an agree surrender of the lease may represent a satisfactor y outcome for both par ties It might include some concessions regarding rent arrears as well This is a legal process, just as the creation of a tenancy is a legal contract It is best done with the help of solicitors