Legal tips for restaurants during coronavirus disruption

Ten days after UK restaurants were told to close, and two weeks after the public was told to avoid them, two lawyers give their top tips for weathering the storm.

On 16 March, Boris Johnson addressed the nation, advising citizens to avoid social contact, work from home and stay away from pubs, bars and restaurants.

While some continued to frequent eateries until they were ordered to close on 21 March, the hospitality industry experienced a dramatic fall in business before a ban on dine-in service was enforced.

On-trade analyst CGA reported that like for like pub, bar and restaurant sales fell by 71% during the week the government ordered all licensed premises to close down due to the coronavirus crisis.

The number of shifts currently available to workers in the UK hospitality industry has also fallen by 76% compared to last month due to the coronavirus pandemic.

While dining in has been banned, restaurants, pubs and bars may operate as a takeaway service. Deliveroo claims it has seen almost 3,000 new UK restaurants join the platform in the past month. Some have also turned their restaurants into shops, selling daily essentials, fresh produce and ready meals.

To help businesses cope during the crisis, the UK Chancellor, Rishi Sunak, has extended the business rates holiday to cover all businesses in the retail, hospitality and leisure sector. He also said that companies in the hospitality sector could apply for an additional cash grant of up to £25,000 per business to help bridge through the period.

The government has also promised to cover 80% of salaries, up to £2,500 a month, for furloughed members of staff. Charities such as Hospitality Action and The Drinks Trust have set up campaigns to aid affected workers.

In the face of so much disruption, and the desire to protect the health of workers, two lawyers present their advice.

Legal tips

Deal with immediate problems

Paul Jagger, partner at Glovers Solicitors, said that businesses should deal with the immediate issues first, including rent payment.

He said: “For the majority of commercial tenants, rent is now due in advance for a whole quarter up to the end of June. If a tenant does not pay their rent then the landlord can forfeit the lease (i.e. evict the tenant).

“The government has put a stop to landlords being able to take this action for a period of 3 months. This does not mean that the rent is cancelled or the obligation to pay goes away, it simply delays the ability for a landlord to evict a tenant for non-payment of rent. Tenants will have some breathing room, but the problem of paying rent remains.”

Open negotiations

He also advises business owners to open negotiations and channels of communication with landlords, in order to inform them of the situation.

He said: “Channels of communication should be opened with your landlord as soon as possible. Unfortunately, most commercial leases will not cater for unprecedented events such as the current pandemic.

“It is highly unlikely that legal concepts you may have heard of such as ‘frustration’ and ‘force majeure’ will assist tenants in either avoiding their rent or ending a lease.

“The government has indicated that, for now, they have intervened as much as they can, and their position is that tenants and landlords come together to find a solution for their individual predicaments. With the temporary ban on eviction in place, now is the time for commercial negotiations to take place.

Be creative

Finally, he advises businesses to be creative and encourages landlords and tenants “to come together” in order to find a solution.

He said that he’s seen examples of landlords agreeing to cancel the March quarter’s rent, or halving the amount owed for the quarter. He has also seen businesses agree a rent reduction, putting payment plans in place for the eventual repayment of the amount due.

In addition, some have opted to defer payment of the rent, although he says this still places “all of the financial burden on the tenant”.

Some pubs have already made arrangements with their tenants. Greene King has delayed rent collection and associated payments until further notice and Young’s has enforced a rent holiday for three months.

Brewer Thwaites has also delayed rent collection until the end of April, as has Star Pubs & Bars.

Check the small print

Rose Smith, a senior associate at Doyle Clayton, advises companies to check the small print before they decide what to do.

She said that while support schemes have been announced, and the government says they will be running by “late April”, it is still unclear when money will be coming in.

“It is not clear if this will include redundancy situations, or whether and how employers will need to demonstrate the fact the employee is not required to work,” she added.

Smith also stated that business owners must agree with affected staff that they will stay on the payroll, but not attend work. Agreement must also be given for any reduced pay. Businesses must also communicate whether they intend to top up the additional 20% of staff salaries, or whether workers will be expected to take a pay cut.

She also advised companies to find out exactly how much money they would be eligible for, and what further costs need to be paid. This must then be communicated clearly to workers.

“It seems that funds made available to businesses through the grant scheme are intended to cover total employment costs rather than salary costs. If so they will need to be paid to the employee subject to the deduction of national insurance and income tax, and the business will need to pay employers’ NI and pension contributions – so the amount actually paid to the employee may be less than the headlines are touting, something which the employee may not be expecting,” she said.

She also recommends that businesses plan for what happens when the support ends.

Smith added: “Will your business immediately bounce back to requiring its full staff, or is it more likely that the increase will be gradual? Is there a chance you may rethink the business and staffing structure during the period that things are on hold? If so, you may still need to make redundancies, or you may need to continue to keep staff on furlough, at which point the government support may have stopped. It is currently only available for wage costs between 1 March and 31 May 2020.”