This week, UK trade body UKHospitality called on the government to support the hospitality industry as it deals with the ongoing and wide-spread threat of the coronavirus. Latest figures released by the trade body state that eating and drinking out has declined by 7%, while forward bookings across hotels, restaurants, pubs and bars has fallen by up to 50%.
Here, Catherine Gannon, Founder of Gannons Solicitors, advises operators facing crisis, due to a loss of revenue and footfall, what they need to do with landlords, HMRC and employees.
Silence is not an option
Easier said than done, but above all don’t panic. The worst thing operators can do during this crisis is stick their heads in the sand. They must help themselves. This is the time to do as much as feasibly possible to keep your business afloat to ride the crisis. Silence is simply not an option.
Making the call to your landlord
Firstly, operators need to make the call to their landlords and then speak with employees. From my experience, landlords are more likely to be open to a conversation on deferring an operator’s rent for an agreed period of time, if an operator is open and honest from the outset about the situation. The key here is to have that conversation sooner rather than later and before falling into arrears or defaulting. Additionally, it may sound obvious, but ask nicely.
It is important to note that most agreement clauses don’t have a force majeure in place, which would prevent a business from fulfilling a contract in unforeseeable circumstances, such as the coronavirus. However, that’s not the case with leases. So, the only option open to operators is to enter into negotiations with their landlord.
Reviewing the crisis through the eyes of a landlord
Landlords know this is a genuine worldwide crisis. Most importantly, they don’t want an operator to default on rent payments. Remember, the majority of landlords would prefer agreed rent arrears than defaults. Why? Because, if they force rent payments during this crisis, the likelihood is that operator will go out of business, leaving them with rent arrears they can’t recover. Shrewd landlords are therefore looking to mitigate their risk of losing everything.
What if a landlord says ‘no’ to delaying my rent?
If a landlord declines to defer rent payments, an operator is then left with a debt by way of the rent. In the worst-case scenario, a landlord can call in bailiffs and instigate court proceedings for rent arrears. I’ve heard cases where bailiffs, either sent by a landlord or through the local council (depending on whom the debt is owed) have physically removed fixtures, fittings, supplies and indeed the operator from the premises during service. Hence why, it is important to have the conversation early, prior to falling into arrears or defaulting.
How can HRMC help?
The best advice in dealing with HMRC is to call them to agree a payment plan, prior to getting into difficulties. This is essential for operators experiencing problems – because if they don’t, the penalty clauses for monthly missed payments can be crippling.
It’s time to have an open and honest conversation with your employees
The biggest cost to any business after rent is staff. Therefore, it is vital for operators during this crisis to immediately reduce their operating costs and review cashflow management. Communication is key here and it is imperative to do it properly. This calls for an open and honest conversation. Operators need to be informing staff that due to the ongoing spread of the virus the business is facing uncertainty.
Importantly, operators need to be advising employees of the steps they are taking to keep the business afloat to safeguard their jobs. Be honest with them, because the worst-case scenario at this time is redundancies, which no one wants! The likelihood is employees will already be aware of the situation, due to the decline in revenue and footfall – so don’t treat them as idiots.
Moving from full-time to reduced or part-time hours
The introduction of reduced or part-time working hours until the threat of the virus passes, is the most logical step for operators. It’s important for operators to be honest and say it as it is: “I can’t afford to pay you on a full-time salary at this time.”
Those who take the time to openly explain the problem, are the ones most likely to gain the consent of employees. The key here is to introduce a thorough, documented consultation process with each individual employee, which clearly outlines the reasons for the change in their contract, whilst also including what will happen once the crisis is averted. By introducing a documented consultation process, operators won’t find themselves in breach of any employment law regulations.
What if employees won’t consent to reduced or part-time hours? Firstly, operators need to take a view as to whether those employees are behaving unreasonably – the question then is do they want to retain those people following the crisis.
If employees won’t go onto reduced or part-time hours, then the only option is redundancy, which once again, has to be supported by a detailed, documented consultation process. Remember, no one wants to lose their job, so having that open and honest conversation from the outset is absolutely crucial here to deter the need for redundancies.