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Tue 21st Apr 2020 - Sector leaders back plans for Chancellor over steps to save businesses
Sector leaders back plans for Chancellor over steps to save businesses: Sector leaders, including Pret A Manger chief executive Pano Christou and Prezzo chair Karen Jones, have signed a letter written by London Union chief executive Jonathan Downey that is to be submitted to the Chancellor Rishi Sunak, that sets out proposals for the next measures to help save businesses and protect jobs across the hospitality industry. The letter, which has been signed by 24 chief executives and founders, pushes for a #NationalTimeOut – a nine-month national payment pause granted to business tenants and to the landlords of commercial premises.

The letter in full:

Dear Chancellor

Thank you for everything you have done so far to support businesses and protect jobs. Along with tens of thousands of other businesses, we accessed the CJRS portal today. To get that system up and running in just one month is a remarkable and very welcome achievement. But I am writing to you now with an idea of what we need to do next to protect thousands of hospitality businesses and save millions of hospitality jobs.

What is this? This is a proposal for the next extraordinary measure to help save businesses and protect jobs. This is a rescue plan for business that won’t cost the taxpayer anything. This is a way to save two million jobs in hospitality. This is a BIG idea that requires new legislation to enable businesses (commercial landlords and hospitality tenants), working together, to shape and create a national solution to the imminent threat of thousands of empty premises. This is a proposal for a nine-month #NationalTimeOut – a #NationalRentFree period for hospitality businesses, combined with a matching loan and interest payment postponement for landlords, as well as protection for them from covenant breach and debt security enforcement. Fear of the virus and the long-term need for physical distancing will mean that most hospitality businesses will remain shut down after lockdown. Almost all have no immediate prospect of being profitable again and many will fail in the next few weeks and months.

Why is Hospitality a special case? Hospitality (and leisure) are special cases for government support because: We were hit first and hit hardest. We have been forced to close by government order. We will be the last allowed to re-open. We will remain loss-making for many months after lockdown is lifted and be the last to get back to any kind of normal. We are one in ten of the UK’s employees. We are vital social and cultural centres at the heart of cities and communities. Our bars, pubs, clubs, cafes, restaurants, hotels, theatres, cinemas, gyms etc. and the people that work in them are all a central part of life and society in the UK. For people to really feel that the crisis is over, they’ll need to see the shutters coming down from the high street so they can return to the places they visited before.

Next Measures: The existing government measures, and especially the CJRS, have worked extremely well to get almost every hospitality business and millions of employees into the economic lifeboat. But this has been at great cost and these measures will not be enough to save most hospitality businesses. Business owners are now focused on how we survive the next few months of no or very low sales. Nobody in hospitality expects to get back to anything like normal for at least a year. 

National Time Out: We estimate that more than half of hospitality businesses and as many as two million jobs will not survive the next few months. We need an extraordinary next measure. We need a #NationalTimeOut – a nine-month national payment pause granted to business tenants and to the landlords of commercial premises. A crucial period of payment postponement when commercial rents, and the debt and interest payments secured on those premises, are pushed to the back end of leases and term loans. The #NationalTimeOut is a plan to postpone the next nine months of rent (01 April-31 December or three rent quarters – 25 Mar/24 Jun/29 Sep), so that nobody pays anything until Q1 2021, when rental payments will start as normal again. A nine month #NationalRentFree. To make up for this period of rent-free, each corresponding lease could be extended by nine months (if the landlord agrees/elects to) so that those payments aren’t lost, just postponed to the end of the lease. In some cases, this may only be a year or two but, in others, it will be for much longer. Typically, hospitality business leases are for 15 years. Like the 12 months business rates break, this #NationalRentFree should be sector specific – applying only to those businesses that have been forced to close by government order, that will be last to reopen and that will take the longest to get back to any kind of normal – hospitality and leisure. 

Help for landlords: Helping business tenants survive this crisis is the single best way to help landlords too. To help landlords manage and bridge the cashflow gap caused by three quarters of no rent, we need to grant the same push back on the next nine-months of their loan and interest payments (where the debt is secured on premises benefiting from the #NationalRentFree). Everything is put on pause until 1 January 2021 when off we all go again. A nine month #NationalTimeOut in order to ensure a #BigBounceBack. The CJRS, SBGF/RHLGF grants and business rates relief are incredibly helpful to hospitality businesses but, without a #NationalRentFree, thousands of commercial premises will soon be empty. 

What else do we need to consider? Our initial conversations with landlords, bankers and lawyers have thrown up various issues that would need to be addressed. The lack of rental income must exempt landlords from any loan or other covenant breaches. There shouldn’t be any penalties for postponement of loan payments, but lenders will resist this. Landlords, as owners of capital assets, are in a much better position to borrow than tenant businesses but they could still be given special access to the CBILS – 100% HMG guarantee, automatic approval etc. We need to consider where debt is secured on mixed-use developments (office, residential and other use above or in the same development as hospitality and leisure). Only a portion of the loan and interest should benefit from a payment break. This is a proposal for a national rent free only – service charge, buildings insurance etc are not included. This will give landlords some cashflow cover so properties can be properly maintained and safeguarded. The existing lease forfeiture moratorium, as well as the promised debt enforcement moratorium, should stay in place until 31 December. There will be some tenant businesses that were failing anyway and have no prospect for survival, regardless of support. If granted a nine-month rent-free period they could ‘site squat’ until the end of the year giving their landlords no chance to find new tenants. Rent reviews that are due to take place during the nine-months should probably be postponed to nine-months from the valuation date. For underleases and superior landlords, we should probably just replicate the proposal so that the reversion of intermediate leases is extended too. This proposal doesn’t sit right where the tenant is rich but the landlord isn’t. This has to work for landlords too. Cashflow will be critical for many landlords but there is no painfree and perfect solution. It is early stages, but this feels like it could be an answer, and something is desperately needed.

How much rent are we talking about? The industry is ready to work with Treasury to provide data and analysis. Our initial research indicates that: A nine-month #NationalRentFree for Hospitality and Leisure represents around £9 billion of postponed payments. A matching nine-month debt and interest repayment break for landlords could represent postponed payments on up to £40 billion of debt. (Although the actual amount postponed is very difficult to calculate when we don’t know the terms of loans and where debt is on mixed-use buildings and developments.)

Who might lose out or be most affected? Pension funds are invested to some extent in hospitality rentals but, in the scheme of things, these are not significant. Landlords that are highly leveraged. They may find it difficult to access additional debt even through an enhanced CBILS. Most will welcome a #NationalTimeOut as they are already struggling to stay within banking covenants. Landlords that rely on rents for their income/livelihood: CBILS. Banks, which will need to support landlords through the CBILS in a much more effective way than they have done for other businesses so far. Pubcos. These are both landlord and tenant and some are highly leveraged.

Conclusion: A #NationalTimeOut, which includes a nine-month #NationalRentFree, will protect countless businesses, save millions of jobs and won’t cost the taxpayer anything.

Signed and supported by:

Alasdair Murdoch, CEO Burger King; Brandon Stephens, Founder Tortilla; Karen Jones, Executive Chair Prezzo; Mark Selby, CEO Wahaca; Des Gunewardena, CEO D&D London; Michael Gardner, Property Director Nando’s; Shamil Thakrar, CEO Dishoom; Will Beckett, CEO Hawksmoor; Nisha Katona, CEO Mowgli; Marcello Distefano, MD San Carlo Group; Andy Wenlock, MD Gordon Ramsay Group; Pano Christou, CEO Pret; Paul Campbell, Chairman GymBox; Charlie McVeigh, Chairman The Breakfast Club; Laura Harper-Hinton, Founder Caravan Restaurants; Jyotin Sethi, CEO JKS Restaurants; Simon Potts, CEO The Alchemist; David Page, Chairman Franco Manca; Peter Marks, CEO Deltic Group; Arjun Waney OBE; Jeremy Roberts, Chairman Living Ventures; Gerry Ford, Global CEO Caffe Nero; Graham Cook, CEO All Star Lanes; and Colin Hughes, UK Country Director Subway.

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