It is clear that pubs will be amongst the last businesses to reopen as lockdown is gradually eased. In a sector built around socialising and high volume trade, social distancing will be a challenge. Even if it becomes viable to reopen pubs with a package of Government support (including reduced furlough and relaxation of beer duty) tenants will need to adapt their premises to comply with social distancing requirements. The Government has not yet published workplace guidance on working safely for the hospitality and leisure sectors although it has published guidance for restaurants offering takeaway or delivery services.
Alterations will be necessary to facilitate social distancing
Vertical drinking will likely be put on hold for some time but there will be options to consider for those serving food at tables and for those with outside space – as long as social distancing measures can be complied with. Government guidance for takeaways currently suggests measures such as:
- Using screens or barriers to separate people from each other.
- Reducing the number of people each person has contact with by using “fixed teams”.
Alterations will certainly be necessary to premises to install screens and barriers and to provide distance between kitchens and front of house staff and customers. Hand sanitiser stations will be needed as well as new signage and potentially a one way system. Tenants with outside space may also want to build gazebos or a marquee and install heaters to increase the number of covers making business viable.
How will tenants pay for necessary alterations?
Most pub leases will include put and keep repairing obligations and will place responsibility for statutory compliance with the tenant. In most cases that means that tenants will be responsible for the cost of making alterations which will protect the health and safety of their employees and comply with social distancing requirements. The majority of tenants will not have the necessary cash to build outdoor structures available at the moment.
How can landlords support tenants?
Landlords and tenants will need to have an open discussion about the cost of required alterations. Landlords will want to see pubs open again and tenants will only be able to open if they can run a viable business. Landlords may consider increasing beer discounts or reducing rent to assist tenants. Following the smoking ban in 2007 many tenants were able to construct outdoor smoking shelters in order to maintain trade with financial assistance from landlords. Some brewers gave loans to operators on an advance of discount (AOD) basis.
We have extensive experience of drafting these agreements and are fully appraised of the pitfalls associated with them. AOD and other loan agreements must be carefully worded, for example, to ensure that the landlord does not lose its right to take enforcement action and/or recall the loan.
Frustration of the lease
If tenants are allowed to reopen but only operate at 40% of capacity meaning that their business is no longer viable tenants may argue that this is sufficient grounds for claiming frustration of their lease. If landlords can agree to rent reductions or financial assistance for implementing social distancing measures then this could help some tenants weather the next stage of the Covid storm.
For further information on free trade loan agreements please contact Christopher Ainsworth.
