UK hospitality Industry faces up to more uncertainty

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Insight Comment
The extension of the commercial eviction ban is good news for businesses who have been devastated by the pandemic but at the same time brings more frustration for landlords. The larger issue is how the government plans to sort all this out when matters come to a head next year.

 

Two big announcements from the UK government look set to bring further unpredictability to the hospitality sector for the rest of 2021.

First, was the widely-expected decision to delay full reopening in England for another month until 19 July. Meaning that although hotels and restaurants are open they are not able to operate at full capacity.

The second is the decision to extend the ban on commercial evictions until March 2022. Good news for hospitality businesses, less so for landlords.

"Existing measures will remain in place, including extending the current moratorium to protect commercial tenants from eviction to March 25, 2022," Treasury Secretary Stephen Barclay told the House of Commons.

Barclay added: "To be clear, all tenants should start to pay rent again in accordance with the terms of their lease or as otherwise agreed with their landlord as soon as restrictions are removed on their sector if they are not already doing so."

An estimate from industry body UK Hospitality suggests that hospitality rent arrears of £2.5 billion have amassed during the course of the pandemic. The continuation of the moratorium does nothing to solve the disputes that have arisen between tenant and landlord, it merely kicks the can further down the road.

“Landlords will be angered by this move and the lack of support they have received through the pandemic. Various sectors have continued trading, yet tenants are using this law to withhold rents. Time will no doubt tell as to how landlords choose to deal with tenants who have amassed unpaid rent,” Lionel Benjamin, co-founder of Ago Hotels said.

In order to deal with the disputes that are likely to arise, the Financial Times reports that debt accumulated during the crisis will be ringfenced with a new arbitration mechanism launched to deal with arguments. The publication also reports that there might be a separate extension to a ban on winding-up petitions.

Dev Desai, partner at law firm Watson Farley & Williams LLP, said that if the government does go ahead and extend protection against insolvency proceedings, it would “not prevent landlords simply suing for rent arrears and obtaining a judgment which can then be enforced at a later stage.”

“Therefore, the nine month extension whilst generally welcome news to those in the hospitality industry, might have the perverse effect of exacerbating the legal pressures they face.”

Continued lockdown pain

The other significant development in the last week was the delay in full reopening in England thanks to the growth of the Delta variant, which is causing a rise in cases and hospitalisations. (Scotland, Wales and Northern Ireland have their own timelines.)

"I am confident we will not need any more than 4 weeks and we won’t need to go beyond July 19th," Prime Minister Boris Johnson said.

Even though pubs, restaurants, hotels and many other hospitality venues are open and trading, they are not at full capacity.

“This four-week delay to lifting restrictions will cost the sector around £3 billion in sales, put at risk 300,000 jobs and have a knock-on impact on bookings throughout the summer and into the autumn. Simply put, if the supports provided by the Chancellor are not sustained and adjusted, businesses will fail and getting this far will count for nought,” UKHospitality Chief Executive Kate Nicholls said.

Even though it is a bitter pill to swallow, James Bland, director at consultancy BVA BDRC:, thinks it might have been the “least-worst option” given the potential devastating impact of another prolonged lockdown if cases, hospitalizations and deaths spiral out of control.

“From a sectoral perspective I can certainly understand the disappointment and frustration with the decision to delay re-opening. On balance, if a binary choice (rather than a nuanced approach I’d have personally preferred) was all that was on the table it was probably the right decision to delay re-opening but I must caveat that by saying only if it’s  accompanied by appropriate support for the sector, its supply chain and even its customers: my heart goes out to those yet again having to change the plans they made for significant life events,” he said.