Colossal rent debts weigh heavily on the hotel industry’s neck. If the situation is not resolved, there could be far-reaching implications for future generations in the bar world, writes Amy Hopkins.
* This feature was originally published in the June 2021 issue of Spirits trade. On June 16, 2021, the UK government announced a further nine-month extension of protection against commercial evictions
The devastation caused by the coronavirus pandemic on the hospitality sector is confirmed by data from the UK Hospitality trade body: in a terrible year, 660,000 jobs were lost, sales of 86 billion pounds sterling (US $ 122.3 billion) have disappeared, and at least 12,000 companies have gone out of business for good.
One figure that continues to rise is the collective rent debt accumulated by the sector since the first nationwide foreclosure in March 2020. Currently, the debt stands at Â£ 2.5 billion, according to UK Hospitality, whose recent survey from members revealed that more than half are unable to pay their arrears.
At the start of the foreclosure, the UK government announced a moratorium on lapsing of leases to prevent landlords from evicting commercial tenants for non-payment of rent. The moratorium has been extended several times and is due to end on June 30, 2021.
Meanwhile, tenants and owners have been on their own when it comes to refunds. However, a large number of discussions ended in deadlock, with UK Hospitality estimating that 40% of business owners were unable to agree on a rental grant with their landlords.
âSome owners have taken a collaborative and supportive approach, but we have also seen a significant number of owners reject this approach and be tough and aggressive. Now is the time to fix this problem, âsaid Kate Nicholls, CEO of UK Hospitality.
As such, the group is calling for “sustained and targeted intervention” by the UK government to help both sides reach a deal. âTo date, the government’s strategy – to introduce and repeatedly expand a ban on coercive measures – has just advanced the problem,â adds Nicholls. UK Hospitality and other voices have warned that a ‘bloodbath’ of closures would be inevitable if the crisis is not resolved, putting 330,000 more jobs at risk.
Following the government’s call for evidence on commercial rent debts, UK Hospitality has submitted a number of proposals to protect the industry, all based on the premise that the financial burden caused by the pandemic should be equitably borne by owners and tenants.
More precisely, the group wishes to see: the existing protections extended and extended; at least 50% of the rent debts accumulated during amortized business closings, and at least 25% amortized for periods when businesses were operating under Covid-19 restrictions; and for owners and tenants to agree on reasonable repayment terms.
WAIT ON THE HOOKS
It is not yet clear whether lawmakers will heed the advice. In the meantime, business leaders are waiting on hot coals. The prospect of paying such high costs while continuing to operate under government-imposed restrictions has left many in a state of anxiety, frustration and disbelief. For some, any positive action will be too little, too late.
âI lost my whole business,â says Jonathan Downey, who opened London-based cocktail institution Milk & Honey almost two decades ago. In a heartbreaking move that reverberated throughout the industry, Downey closed the prestigious Soho bar last September after 18 years of operation. It has also closed its street restaurants Giant Robot, Dinerama, and Hawker House for good, while its Model Market business will remain afloat until the end of September.
“By then, I would have lost everything I have ever built in the hospitality industry,” says Downey, who blames rent debt for every shutdown, calling it “the biggest problem” the industry is facing. confronted.
Over the course of two decades, Downey has paid almost Â£ 4million (US $ 5.7million) in rent to the owner of Milk & Honey, “but they wouldn’t accept a pound of arrears being written off. ; nothing, âhe said.
Over the past year, Downey has transformed what started out as a WhatsApp group into a lobbying organization called Hospitality Union. Through this, he launched the #NationalTimeOut campaign, which calls on the government to legislate for a national rotating rent system, that is, zero rent for periods without rotation during the pandemic. “[The government needs] an extraordinary response to extraordinary circumstances, âsays Downey. “They have to be imaginative and creative, and they just didn’t do anything … and what they did, they did wrong.”
Downey believes that if homeowners aren’t forced by law to agree to significantly reduced terms, “they’re never going to make deals.” Thanks to Hospitality Union, Downey has heard many stories of callous behavior from owners, and even threats of violence. He hopes the new organization will provide a platform for small business owners who often lack the bargaining power and resources to join forces and influence positive change.
Peter Thornton, chief financial officer of London concert hall The Piano Works, calls on the UK government to adopt Australia’s rent relief model, which operates on a proportionality basis.
Similar to Downey’s rent-to-revenue proposal, this would mean that rent relief would be commensurate with the tenant’s reduction in business, with rent waivers accounting for at least 50% of the total rent reduction.
âMany business ventures are opening in an uncertain environment, which could prove difficult for cash flow, while also facing pressure from potential landlord action to pay off rent arrears,â says Thornton. “We are not asking for additional support from the government, but we are asking for a fair and binding solution to the rent problem that ensures that landlords and tenants work together … and share the burden of the pandemic, in which case the Australia’s rent relief model would be a strong and viable solution.
Meanwhile, in the United States, mass rent debt is also a constant concern for hospitality venues, and businesses must contend with a fragmented state-by-state approach.
âRent debt, and the threat thereof, has forced the closure of thousands of bars, many of which are icons in their own communities,â said Aaron Gregory Smith, executive director of the United States Bartenders’ Guild.
Smith adds that while many states have anti-eviction orders for residential tenants, the same has not been true for business premises. As such, “many bars have had to find creative ways to make money to cover their rent obligation throughout the pandemic.”
It quickly becomes evident that the rent crisis is having an even deeper impact on the industry; Now that restrictions are easing in the US, UK and other markets, Smith notes that many companies face staff shortages after laying off or taking employees off to cover the costs of rent. âIf rent relief had been an option, it’s entirely possible that everyone is now working with the best levels of staff,â he says.
Downey notes that in the future the industry could suffer from a lack of investment if potential business owners view hospitality venues as “risky” assets that “could be shut down at any time, without fail. of [their] clean. “In addition, rent debts and other challenges stemming from the pandemic have” deterred many people from working in the industry. [because] these jobs are not as secure as we once thought â.
In the long run, Smith believes the current crisis could lead to a more equitable relationship between landlords and commercial tenants. “We hope that in the future, whether or not the rent debt problem is easily resolved, landlords will become much more empathetic partners with the businesses they rent.”