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The Importance Of Agile Property Management In A Challenging Sector

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The UK restaurant sector is undoubtedly facing a challenging year, with some of the nation’s most high-profile chains facing closure or significantly reducing the number of restaurants in their portfolio.

 

According to their research, as published in The Caterer, insolvency rates within the sector have risen by 35% year on year and were expected to reach 1,500 for the first time.

 

The reasons? Well, a YouGov poll published in The Telegraph, stated that almost a third of Britons are visiting restaurants less frequently than last year. Add to this a combination of factors such as rising costs, fierce competition and falling consumer spending and its little wonder that many restaurant businesses ranging from high-profile chains to independent establishments are closing their doors.

 

Three recent insolvency events handled by our Property Management Team hit home about the challenges facing the sector, and in turn, our landlord clients. For those leasing buildings to restaurants, especially once-popular mid-market chains, the prospect of losing a high-profile tenant could be causing sleepless nights.

 

It is important to understand how to manage the turbulence resulting from three different types of insolvency events; a liquidation, a CVA and a forfeiture.

 

In one case recently, a tenant went into liquidation and the liquidator disclaimed the lease, effectively bringing the tenant’s leasehold liabilities to an end, which resulted in a vacant unit requiring the need to be marketed, possible repairs, vacant rates, and insurance to pay amongst other costs.

 

Such cases require active and agile asset management to include notifying the insurers and have put in plans to ensure that any vacant property requirements that the insurers may have are being attended to. Business rates mitigation schemes will also help to minimise void costs. In addition to a proactive letting agent, it should be considered whether an application to change the use class of the unit might yield a higher rental and faster letting.

 

We have seen several high profile restaurant chains seeking to implement a Company Voluntary Arrangement (CVA). Such restaurants are often located in popular high streets in good locations, and this presents the opportunity to secure:

1. A new tenant; on
2. An improved lease, who may be drawn to the location; at
3. A higher rent. A change of use may be appropriate, but with the right advice, we can turn a ‘bump in the road’ into longer-term improved revenue for a landlord.

 

The third insolvency event related to the forfeiture of the lease. The ability to forfeit enables the landlord to re-enter their property following a breach by the tenant, such as non-payment of rent, and by doing so, terminates the lease.

 

This can be a risky move and could be costly but it is a potent tool in any landlord’s toolbox and there is a place for its considered use. Your managing agent will use their knowledge of the property, the tenant and the market to advise whether this tool should be used. In this case, we were confident that we could let the space to a better tenant at a better rent. That said, the tenant, in this case, applied to Court to secure ‘relief from forfeiture’. Relief was granted on the condition that the rent and legal costs were paid immediately (the tenant complied). In this case, setting the precedent early that liabilities must be paid, will reduce the chance of it happening again, helping to ensure the asset continues to be income-producing for the landlord.

 

The highly publicised issues facing some big-name retailers and restaurateurs on the high street highlights the need to have a managing agent that is proactive, able to deliver the right advice and act quickly, to limit costly vacant periods, and potentially even increase returns in the long run.