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Wed 13th Apr 2022 - Legal Briefing

Navigating complex opportunities by Michelle Hazlewood and Luke Elford

Just when we thought we had a glimmer of normality and stability, the situation has become quite complicated. Hospitality has been faced with complex legislation relating to the winding down of covid support, drastic changes to the economy and the fallout of a war raging within Europe. Businesses are currently facing a range of pressures that are perhaps a little less on the nose than they used to be during hard covid restrictions, and navigating them as an operator is not so straightforward. Whether you are taking on new businesses or trying to maintain your own, it is not an easy time for the sector.

When the pandemic first began, temporary measures were put in place to try and support businesses that were affected the most by restrictions. The Corporate Insolvency and Governance Act 2020 made significant changes to insolvency law and provided a ban on termination provisions, protecting the industry from wipe-out closures. The restriction on winding up companies came to an end on 31 March 2022 meaning the insolvency regime is more or less back to where it was pre-pandemic.

However, the government has introduced a new arbitration process for rent debts that built up between 23 March 2020 and 18 July 2021 in England (7 August 2021 in Wales). This means businesses can settle disputes outside of court if the parties involved cannot reach a negotiated solution themselves. Tenants need to ensure they have continued to pay their recent rents before taking this route or you could run the risk of having your leases forfeited for failing to pay. Any payments to landlords need to be clearly labelled as to which rent quarter/invoice the money should be attributed.

Business minister Paul Scully highlighted arbitration should come after all other options have been exhausted. He said: “This new law will give commercial tenants and landlords the ability to draw a line under the uncertainty caused by the pandemic so they can plan ahead and return to normality. Landlords and tenants should keep working together to reach their own agreements where possible using our code of practice to help them, and we’ve made arbitration available as a last resort. Tenants who can repay their rent debts in full, should do so, and when they cannot, landlords should try to share the burden, so we can all move on.”

As wonderful as it is to have this arbitration option available, it is not a fix all button. The industry is still dealing with the damage that covid has left behind, which includes staff shortages, sickness and debts. On 5 April, Propel reported there are up to 500,000 people working at companies that are at heightened risk of insolvency. These businesses are battling not only the issues that have built up over the pandemic but also problems that are facing businesses right here and now. As we said before, inflationary pressures, the war in Ukraine, the rising costs of living, and post-pandemic uncertainty are all complications that have been dumped on top of what has already been a rough few years.

However, despite all of this doom and gloom, we believe there are opportunities out there for the operators willing (and savvy enough) to seize them.

For those that are in the position to do so, this might include taking on a new business. It is likely there is a wealth of choice as the high street has been devastated following covid. We are not seeing a flood of new retailers coming forward to take on these empty sites, leaving room for new hospitality venues to bloom through. There might even be an opportunity to negotiate leases on more generous terms. However, individuals should proceed with caution as these potential opportunities require a good level of judgment. Town centres have always evolved with certain areas earmarked for rejuvenation. It could be worth looking at the local plan set forth by the council concerning the land use of the area in coming years. There is no point in buying a venue that you plan to operate late at night if there is an intention to convert the now unused office space nearby into residential accommodation.

On the other side of the coin is the chance to acquire an already existing, well-trained team of staff by buying into a distressed business. One thing that operators need to be mindful of when looking at another business or site is what the exact situation is with any existing premises licences that the venue might hold. You would be astonished at the number of times we have seen operators looking into businesses that may have gone into administration or entered into a company voluntary arrangement, with absolutely no steps taken to protect the licence(s). Even if the site has sold alcohol for a long time, it is still very important operators check the licence still exists as it may have been removed due to insolvency of the previous operator.

It is also essential you check for any licensing debts that sit with the premises as there is a possibility the annual fees and late-night levy payments have not been paid for a long while. This can prove to be an expensive surprise cost as the licensing authority may refuse to release the licence until these are dealt with. Sometimes we see very old licences that may have been carried across when the Licensing Act 2003 came into force that remain with their original extremely favourable hours or conditions. Although councils say they are sensitive and minded to grant licences where they have lapsed due to insolvency, you could find the licence that you end up with does not bear much resemblance to what existed before – particularly if the site is within a cumulative impact area.

With such a range of opportunity out there in what is currently a very difficult landscape, we would like to remind you that seeking legal advice to navigate these complicated areas is encouraged. We have seen such drastic changes since March 2020 and while things are on the up for hospitality, there are still difficulties to be faced. A helping hand might be what it takes to save your business or take it to the next level. 
Michelle Hazlewood and Luke Elford are partners at John Gaunt & Partners

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