Shelley Sandzer: Together is better

The Eat out to Help Out Scheme was a godsend to the beleaguered restaurant sector. The discount to consumers went further than just a cut price meal, it was both a call to arms and a signal that restaurants were open for business.

While several operators reported the scheme led to sales levels being back up to 2019 on a like-for-like basis, on the days of the week the offer was not running, sales volumes invariably slid. With children now back at school, workers being encouraged back to their desks, and the furlough scheme winding down, there is the potential for quieter times ahead as we do not have either the time or the money for those lazy weekday afternoon meals.

Operators already worried about trade levels over the coming months have been dealt yet another blow with the advent of the ‘Rule of Six’, which is increasingly likely to be followed by even more restrictions as the government battles to balance our health with the economy.

The national lockdown extended for a period of 15 weeks. There are only 14 weeks until Christmas and if the Rule of Six continues for as long (or if not longer), and indeed further restrictive measures are added, there is a real fear Christmas 2020 may as well be cancelled.

At least the industry’s calls for the forfeiture moratorium to be extended have been answered. Proof that the government does sometimes listen, albeit often to the loudest voice. As a result, landlords will continue to be unable to evict their tenants for non-payment of rent for at least a further three months. The sighs of relief among operators were like a thunderclap, as were the cries of dismay from landlords.

But is the extension really a good thing, or is it yet another hastily applied sticking plaster that hides a much more significant issue?

On 29 September, the Michaelmas Quarter Day, many operators who stopped paying their rent from the March quarter will be in debt to the tune of three quarters’ worth of rent. In some instances, this may be an insurmountable debt to overcome. Whether the moratorium grants a stay of three or a further six months does nothing to address the real problem – the debt that has been accrued.

For some operators, the answer is to embark on a CVA. It was reported the restaurant sector saw 13 CVAs for the whole of the 2019, whereas we have already seen 16 CVAs take place in the first half of 2020, with this number highly likely to increase further.

Yet that is arguably another sticking plaster whose record of success is increasingly diluted.

A better approach is for operators to think harder and more broadly about restructuring their businesses, working not against landlords, as so often seems the case with CVAs, but with them. Talking, listening and sharing are, in my experience, leading to more productive and balanced negotiations that increase the chances of operators surviving and landlords collecting more sustainable levels of rent.

Operators should therefore use this time wisely to actively engage with their landlords to find a solution. It might be that be some of the debt is waived, as is happening with more understanding landlords, or that a repayment plan or a more comprehensive lease restructure to incorporate a turnover element is agreed. Whatever the option, the point is there should be options. And they should be developed together not, as the industry tends to do, from miles apart.

Victoria Oates is a partner at Shelley Sandzer Professional Services