As the UK makes its way through its third lockdown, the nation’s night-time economy continues to fight for survival, says Andrew Andronikou, a managing director in our Restructuring and Insolvency team. And to make a challenging situation even worse, landlords’ relationships with struggling tenants are being tested to their limits. Roger Payne, the chief executive officer of Camden Dining Group and director of The Table Services, joins Andrew to add his perspective as a hospitality-sector expert and operator at the sharp end of the Coronavirus crisis.
Change and challenges
In the UK, the businesses that form the backbone of the nation’s night-time economy pulled out all the stops to keep pace with government measures designed to contain the spread of COVID-19. Pubs, clubs, bars and restaurants that made it through the first lockdown had barely reopened their doors when the government introduced a fresh raft of ’halfway house’ restrictions, including a 10pm curfew. And no sooner had these venues got to grips with the new measures, when another four-week national lockdown was announced, which lasted until 2 December. But that wasn’t the end of their troubles, with a third lockdown introduced on 4 January, which continues at the time of writing.
The sector had already been through some tough times before COVID-19 came into the picture, says Andrew Andronikou: “It was an oversaturated, intensely competitive market where many players had already restructured their business to reduce overheads and come out of onerous leases. Now COVID-19 has come along and set them all back a good decade in trading terms”.
Employment in the sector has inevitably suffered a serious blow too. The government’s financial- support measures, like the Job Retention Scheme and the moratorium on business rents may have helped stem the hemorrhaging of sector jobs in the short term. But for employers, it’s now about survival. Many operators have already gone through consultation periods in readiness for the end of the pandemic. But others are facing some tough decisions: do they stay loyal to their staff, some of whom may have been with them for years? Or do they cut overheads back to the bone by letting those people go now?
“In general, landlords have only one default position when it comes to their tenants: pay the rent or get out,” observes Andrew: “There’s no middle ground; no compromise. But the irony is that this lack of commercial foresight is going to leave them sitting on a lot of void spaces – and losing out financially as a result.”
Landlord-tenant dialogue works best when both sides are talking
This sentiment is wholeheartedly echoed by Roger Payne: “Back at the beginning of the crisis, landlords were going straight in with a heavy-handed approach to deal with tenants who were struggling to pay their rent – as if they themselves were immune to the impact of COVID-19. Now that the pandemic is lasting longer than they expected, they’re backing off a bit.”
Roger also points to a disparity in approach among different types of landlords: “Some landlords – particularly if they’re funded from offshore companies – may be sympathetic to tenants in trouble, but they’re subject to covenants that stop them from entering into deals, even if they wanted to. Generally speaking, institutional landlords are the easiest to deal with. The most challenging tend to be those that work for quasi-governmental bodies: some of them are disregarding the government’s advice to do deals with their tenants on rents.”
A pragmatic approach to business rents
Yet it’s not all doom and gloom when it comes to landlord-tenant relationships since COVID-19. In the market area of Camden Town, where Roger operates the Shaka Zulu restaurant, bar and club, all of the business premises are owned by a single landlord – LabTech. From the start of lockdown, reports Roger, LabTech took a highly pragmatic approach to supporting its tenants, suspending rents for around 2,000 of stallholders from 14 March: “As a landlord, they were astute enough to realise that there was no point in collecting rent during the lockdown, because no revenues meant no money to pay that rent. Instead, they entered a sensible, revenue-based system with me after the first lockdown. And sensible, practical arrangements like this are the only reason that many businesses in this sector are still standing.”
The future of the sector will also depend on the government’s willingness to support operators by implementing regulations that will enable them not just to grow post-lockdown, but to grow confidently.
In addition, operators are all too aware that government financial support for the sector cannot go on forever – and the uncertainty around how long it will continue for is seriously affecting their ability to plan. Many believe that prompt confirmation from the government of how long support will last would empower them to seek the appropriate advice and plan, for coming out the other side.
Harnessing the energy of the UK’s night-time economy entrepreneurs
Despite the challenges, the night-time sector has one hugely positive factor in its favour, says Andrew: “The entrepreneurs and the leaders at the forefront of this industry have the energy to make it through these tough times: they’re absolutely committed to putting their businesses on ice; working with their suppliers, landlords and employees; and looking to the future. The message we’re receiving loud and clear from these people is that they are ready and willing to engage with professionals like us to find a holistic solution not just to their immediate working-capital issues, but also to the challenges they will face as the sector eventually moves towards recovery. And it’s that level of energy and commitment that will see operators safely through this crisis – and beyond.”
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