Business

Good operators always shine through – Opportunities are available when there are tough trading conditions

by Rebecca Warriner

We are in difficult trading times for the hospitality industry. Following the national (and international) lockdown due to the covid-19 pandemic lifestyle habits have changed. This varies from workers not going into offices, through to regular diners choosing to stay at home rather than be in busy social environments, through to a reduction in those who travel as part of their job and stay overnight in hotels. All of these changes mean a reduction in the available market for many sectors of the hospitality industry.

On the back of these lifestyle changes, and in part because of them, we are in a time of increasing lifestyle costs for individuals, and operating costs for businesses. It would appear the outlook is gloomy for all.

However, in difficult times where businesses fail there are opportunities for those who can identify trends, manage costs, and target those areas where there is the potential for  growth. This is not easy to do and can take up a great deal of time. Many operators in the hospitality industry that try to spread themselves too thinly, or have additional employment to make ends meet, may find that forgetting the planning stages of their business can be mortally wounding. Traditionally the hospitality industry was the sole focus of those involved in the day to day running of a business, but the trend to look at a pub or guest house as a way of topping up on other employment became fashionable in the early 2000’s when property prices and profitability in these sectors rose with the need for little additional input. Focus must now be 100% on making a business a success.

The formula for success in the hospitality industry is not rocket science, but it is pretty close and it needs dedication, thorough and ongoing planning, hard work and long hours. Not putting the work in means reduced turnover, but the costs are still there. These costs are rising so that means less operating profit. 

2023 sees my 37th year in the hospitality business. There have been many peaks and troughs for the industry during that time since 1985. However, one constant has remained. Operators who understand trends, control the gross profit and costs in their business, and plan ahead, continue to have a successful business. There is always something to do. Plan when it is quiet and make hay when the sun shines.

At MJD HUGHES Ltd we are always talking to property owners and landlords who have opportunities for those who can operate a business. Our job is putting the two sides together. Our business is the hospitality business, and keeping it going. We don’t believe that good businesses should close. Email us today at info@mjdhughes.com if you are interested in running a pub, guest house, restaurant, hotel or have an idea for a property that may just be ahead of the game. We would love to hear from you and marry you up with the property that will help you realise your potential.

Business

RICS Code for Leasing Business Premises – Are your lease terms reasonable?

by mjdhughes

The RICS code for lease business premises was released in February 2020 and becomes effective on 1st September 2020. Claudia Willard from Blacks Solicitors in Leeds discusses the code here and raises some points that both tenants and landlords should consider.

Are your lease terms reasonable?

There has been a code for leasing commercial property since 2007, which acts as a guide for setting out key terms that are considered reasonable in the market.

In February 2020, the Royal Institution of Chartered Surveyors (RICS) published a new code to reflect the modernisation of commercial lease terms over the past 13 years.

The new code aims to improve the quality and fairness of negotiations and to promote the use of comprehensive heads of terms to make the legal drafting process more efficient and cost effective.

The new 2020 Code will supersede the 2007 Code and will be effective from 1 September 2020.

The 2020 Code will apply to most commercial property lettings in England and Wales but there are some exclusions, such as agricultural premises, premises used to house plant and equipment only, premises that will be wholly sublet by a tenant and short lets of 6 months or less.

We summarise some of the notable changes below:
The 2020 Code makes recommendations of good practice but there are some mandatory requirements for RICS members and so RICS regulated agents, surveyors and landlords must comply with certain requirements, promoting a collaborative approach to agreeing lease terms.

Break Clauses – leases should require the landlord to reimburse the tenant for rent, insurance rent and service charge that has been paid in advance by the tenant, but relates to a period after the break date.

Rent Reviews – provisions for indexed rent reviews should not contain obscure formula which is drafted to produce a disproportionate increase of rent.

Inherent Defects and Repairs – where a tenant takes a lease of newly built premises with repairing obligations, the tenant should be given suitable protection against inherent construction defects for a suitable period of time.

Reinstatement – landlord can require a tenant to remove alterations where the landlord has reasonable grounds to require the removal. The 2020 Code advises documenting any agreement as to reinstatement in any consent for alterations.

Energy Performance Certificate (EPC) – new provisions require cooperation to obtain EPCs, recognising the increasing importance of green leasing.

A copy of the 2020 Code is available at the following link:

https://www.rics.org/globalassets/code-for-leasing_ps-version_feb-2020.pdf

If you have any questions relating to any of the above, please contact Claudia Willard at Blacks Solicitors in Leeds by emailing: CWillard@lawblacks.com

Business

With one quarter rent day just gone what looms for commercial landlord and tenant relationships?

by mjdhughes

‘Propertyweek’ the respected journal for property industry has reported that experts are predicting as few as 10% of commercial property tenants will pay their rent this quarter. The article, that subscribers can read in full, actually claims only 10% of rents will be paid. If we look at this another way maybe the prediction is for more tenants paying but only part of their rent? Time will tell. This second possibility would certainly make sense. With businesses hit hard from retail to office, and leisure to industry, paying some rent rather than all will help to pour oil on troubled waters between the historically fractious relationship of landlord and tenant.

Landlords need tenants, and tenants need landlords who will work with them. This is true of the current situation and also for the foreseeable future. Maintaining a cordial relationship can only help both sides in the long run.

The High Street has been on a downward spiral for many years and certainly since the credit crisis of 2008. Leisure and hospitality has fared no better as operators open and fail with concepts that consumers quickly tire of. Both sectors went into the covid-19 crisis with few reserves and rents that were based upon a performance that was impossible to achieve. The size and space in a unit  was used to calculate how many consumers could pass through the doors, and spend per head was the key to maximising the value for the tenant operator and by default the rent that could be paid to the landlord. Space remains key to the sustainability of a business, but with social distancing the value plummets as one consumer can take up 4 square metres. Compare this to 1 square metre and 25% of historical trade levels becomes a reasonable expectation.

A quarter of the turnover of a pre-covid operation sounds bad enough but with furlough and possible redundancy the experience of most customers, savings and overdrafts will have been delved into during the lockdown and expendable income must decrease at the very best for the short term.

Propertyweek spoke to many of the movers and shakers of the property world and has come up with some chilling quotes for our time:

When commenting on the low level of rent collections, Vivienne King, the CEO of Revo commented, “If that is the case, it will have severe implications for property owners, their lenders and ultimately pensioners and savers who rely directly or indirectly on retail property for income. These are unprecedented times, but despite the lockdown measures those businesses that can pay, should pay – and those property owners that can support businesses genuinely in distress, should do so. Whilst reinforcing the contractual obligation, this is what the Government’s Code of Practice expects.”

Robert Hayton at Altus Group thinks that the rent collected by landlords will be as low as 10% of what would be expected, “Occupied retail, leisure and hospitality premises in England have received a business rates holiday during 2020/21 worth £10.13 billion but landlords have largely been overlooked despite being asked to play their part by waiving or deferring rent to help their tenants survive. It is only fair that there is tax parity and that the rates holiday is extended to those properties vacant and to let.”

The importance of landlords and tenants working together was commented on by Melanie Leech, chief executive of the British Property Federation, “For any business that is concerned about how it is going to meet its rent obligations, I urge you to refer to the Government’s code of practice for commercial real estate, published on 19 June, as a way to engage with your landlord. Businesses in genuine need of support will find landlords wanting to offer what support they can, and a range of possible options in the code – including flexibility around rents and other lease terms could include moving from quarterly to monthly rent payments and providing rent deferrals or payment holidays, depending on individual business’ financial circumstances.”

No one will be the winner if tenants fail due to rent demands and landlords have to sell due to a sharp decline in  their returns. Some tenants think this is a golden opportunity to buy the property they rent and end throwing money down the drain when they could own the property. This is a naïve way to think as history has shown that this is not the outcome of such circumstances. If landlords find their only option is to sell the property  it will go to the buyer with the biggest and easily accessible source of funding. The result will be that the tenants still need to pay their rent but to another landlord. This new landlord, having bet on a certain level of return will not be as flexible as the existing landlord who can appreciate the tenants business and the relationship of landlord and tenant has already been established.

We should all be careful for what we wish for.

Business

Pubs and restaurants reopening 4th July 2020 – Government Advice

by mjdhughes

England only! Northern Ireland will be implementing a re-opening in early July with Scotland and Wales yet to confirm dates.

Information relating to the reopening of Pubs, restaurants and other sectors of the hospitality industry can be found at the following link:

https://www.gov.uk/guidance/working-safely-during-coronavirus-covid-19/restaurants-offering-takeaway-or-delivery?

If you are a pub or restaurant operator and have any specific questions relating to your own circumstances please contact us directly at info@mjdhughes.com

Business

Covid-19 – How we’re going to work through it

by mjdhughes

Covid-19 – How we’re going to work through it!

We’re a national company, meaning we travel the length and breadth of the country to provide professional services to the commercial property sector. During this period of crisis our ability to undertake physical inspections of property will be greatly reduced.

From today, we will be working remotely via landlines, mobile, conference calls, virtual meetings, email, internet and every other method possible to continue to bring you our specialist and transparent approach to the buying and selling of property, businesses, and our whole range of ancillary services.

Most importantly of all, our services will continue to be provided with clients knowing what they are paying for when they instruct us. Our services are supplied to the highest professional standard providing confidence from instruction to completion.

Normal service will be resumed as soon as possible.

Keep calling, keep emailing and keep asking us for help.

We want to hear from you.

Business

Insurance Checklist – Do you have everything covered?

by mjdhughes

PXL Insurance are brokers for commercial property insurance. Here they advise one what you need to have covered in your insurance policy

Cover the assets, earnings and legal liabilities of your business to ensure you have protection against:

  • Building insurance
  • Tenants Improvements (if you are a tenant but have made improvements to the property at your own cost that you couldn’t take with you if you moved out i.e. decoration, flooring, partition walls, sanitary fixtures and fittings etc )
  • Trade Contents Fixtures and Fittings
  • Coverage for loss of drinks licence
  • Home contents if you live on the premises
  • Business Interruption to protect your income after an incident that results in a successful claim. You should request a level of cover that is more than your Gross Profit
  • Public Liability for injury or damage to the public
  • Products Liability to cover against causing illness from food or drink
  • Employers Liability to cover any employees injuries, including damages, legal costs, and expenses

Some of the likely Conditions and Policy Warranties you should be aware of:

  • Employers Reference Number (ERN). All insurers now request your ERN where Employers Liability cover has been provided. This is to help identify the relevant insurer should a claim come in down the line. If you do not know your ERN your accountant should be able to provide it for you.
  • Electrical Certificate. It is very likely any insurer will expect that an Electrical Inspection of the fixed wiring has been carried out within the past 5 years by an accredited Electrician i.e. NICEIC or NAPIT.
  • Flat Roof Warranty. If your property has any section of flat roof you should roughly work out the percentage of the flat roof and notify your insurer. This will likely result in a Flat Roof Warranty being added which will require you to have the flat roof and gutters checked every 2 years by a professional and a record kept, if there are any defects found they should be rectified immediately.
  • Kitchen Ducting and Extraction Systems. If you do any cooking at the premises most Insurers will require you to have all your extraction systems and ducting to be professionally cleaned on an annual basis, this prevents a build-up of grease in areas your normal cleaning regime cannot reach. If a fire breaks out in these areas they are very difficult to contain, and the cleaning drastically reduces the chances of this happening.
  • Deep Fat Fryers must be thermostatically controlled and manned at all times.
  • Local Hygiene Rating / Scores on the Doors. More and more insurers will now only offer cover if a score of 2 or above has been awarded.
  • Health & Safety policy. If you have 5 or more employees this is mandatory.
  • Minimum Security. It is likely that any insurer will have a minimum security requirement, this is normally a 5 Lever Mortice Deadlock on any external doors (Fire Exits are exempt) and key operated window locks on any accessible windows.
  • Duty of disclosure. It is your responsibility to disclose all the information requested by your insurer and anything you believe may influence their decision to insure you. If you disclose everything and adhere to the warranties / conditions you shouldn’t have any issues in the event of a claim.
  • Things like previous claims, adverse financial history i.e. CCJ’s, Bankruptcies, Liquidations and Convictions can have a big impact on an insurers decision to provide cover, this applies to all partners, directors or significant persons involved in the running of the business. If an undisclosed detail is found during a claims process, its possible your policy could be voided from inception, meaning not only would the claim not be paid, but it could make it very difficult for you to obtain insurance in the future. If in any doubt discuss it with your broker.

PXL Insurance offer a range of insurance options to fit your business needs. Contact David Hawkesworth at dhawksworth@pxlassociates.co.uk