After two agonising months of fear and uncertainty, the hospitality sector finally breathed a tentative sigh of relief after Rishi Sunak delivered his Budget on Wednesday (3 March). It may not have been as generous a package as many would have perhaps hoped, but the decision to extend the business rates holiday and VAT cut to 5% for hospitality until the end of June and September respectively will provide some much-needed breathing space as the industry starts to come out enforced hibernation.
Likewise, the announcement of a freeze on alcohol duty, and the introduction of a ‘restart’ grant scheme that will give hospitality businesses access to one-off payments worth up to £18,000 on a per property basis, while not being met with resounding applause has put a smile on some faces. For the first time in a long while, there’s a cautious sense of optimism among the sector.
What good is that hope, though, if the Government continues to ignore the growing rent arrears bill being amassed across the sector – arguably the biggest threat to business survival right now?
For the past year, businesses have been protected from eviction by the lease forfeiture moratorium, which prevents landlords from repossessing commercial premises if businesses are unable to pay their rent as a result of the Coronavirus pandemic. Back in early December, trade body UKHospitality estimated there was around £1.6bn in unsettled rent within hospitality that had accumulated as a result of the Covid crisis. With an additional quarter of arrears subsequently added to that total and another due before the protections are currently due to end on 31 March, that figure could be heading towards £3bn.
Ministers are said to be drawing up plans to further extend the moratorium, but nothing has come of this so far. And even if they do, this only solves part of the problem; a solution to the mounting debt is also crucial. While some landlords have been supportive, and deals have been struck in terms of turnover rents, many businesses simply won’t be able to survive when the landlords do finally come looking for payment.
As Kate Nicholls, UKHospitality chief executive says: “The biggest gap in support remains the outstanding sector rent debt. We need the Government to announce an extension of the moratorium at the earliest opportunity, and work with industry to establish a landing zone to resolve this millstone around our recovery."
Concerningly, an interim pre-Budget report by the Business, Energy and Industrial Strategy (BEIS) Committee published earlier this week noted that the Government ‘does not appear to be any closer to identifying or facilitating a long-term solution to the difficulties faced by landlords and commercial tenants'. It went on to argue that ministers should be looking at longer-term ‘active measures to address the issue of growing commercial rent arrears’ that must involve businesses, landlords, banks and other stakeholders.
So, what could the Government do? One suggestion is for the Government to nationally legislate a rent-free period for leisure and hospitality, followed by an implemented period of turnover rent; with the means in place to compensate landlords for their loss of income.
Another is for the debt to be shouldered equally between the Government, landlords and tenants, with the latter given a suitable amount of time to pay back their share. And then there’s the recently launched #GiveHospitalityABreak campaign, which calls for the introduction of protections that allows hospitality tenants to defer half of their arrears for two years; thus making the debt much more manageable.
With less than a month until the moratorium is currently due to expire, what’s more than clear is that speed is crucial, which hardly bodes well given the Government's recent track record. It took three months from the onset of the pandemic for the Housing Department to come up with its voluntary 'code of practice' to help guide negotiations between landlords and tenants - a document that has been roundly dismissed by business owners as not being worth the paper it’s written on. Since then, nothing of note, beyond quarterly extensions to the moratorium, has been offered, which perhaps explains why one recent study found that 77% of hospitality operators were being forced to look at restructuring or insolvency options, with current rents remaining unaffordable for most businesses.
Frankly, it beggars belief that a more robust, legislative solution has not been forthcoming. Without one, many businesses won’t even have a shot at making a recovery.
