UK landlords face loss of restaurant rental income
Chains are preparing to close sites or use insolvency procedures to push through rent cuts
UK landlords face widespread loss of rental income from restaurants, as some of the biggest chains prepare to close sites or use insolvency procedures to push through rent cuts.
The Restaurant Group, which owns Frankie & Benny’s and Chiquito, said on Monday that it was considering a “company voluntary arrangement” — a process that would allow the company to cut its debts, including rents — as one option, alongside a move to turnover-based rents and the closure of unprofitable restaurants.
“Our industry is facing exceptional challenges in what is an unprecedented operating environment,” said the company, which last week confirmed that it was looking to close permanently up to 120 sites, affecting 3,000 jobs.
Mid-market restaurant chains were already struggling before the pandemic, said Douglas Jack, an analyst at Peel Hunt, “with many operators suffering from falling demand, rising costs, too much debt, too much rent and an over-reliance on selling through delivery.”
Chains including Prezzo, Byron and Giraffe are among those that had already gone through CVAs to cut costs.
PizzaExpress is now considering a CVA as part of a wider restructuring of the group, while fast-food chains Pret and Leon have also hired consultants to negotiate with landlords. Burger King is in discussions with landlords over moving to turnover-based rent.
Landlords complain that government intervention has given tenants the upper hand in negotiations. The corporate insolvency and governance bill, currently making its way through parliament, makes it harder for property owners to issue legal demands for unpaid rent.
The bill also creates a moratorium of 20 working days on creditors enforcing debts owed by struggling businesses, with the aim of giving them time to assess restructuring options.
“No landlords like the idea that companies can use this restructuring moratorium to shield themselves from enforcement while they restructure all their leases,” said Mathew Ditchburn, head of the real estates disputes team at law firm Hogan Lovells, adding that there would likely be “a raft of casual dining CVAs later in the year”.
Mr Jack said that The Restaurant Group, which has already put its Chiquitos and Food+Fuel brands into administration, was in a relatively strong negotiating position because it had relatively short terms left on many of its leases. It could keep lossmaking sites boarded up at a rent cost of around £20m per year, which would be detrimental to landlords looking to attract other tenants and consumers.
The restructuring discussions will not affect the group’s Wagamama or pubs businesses, which could reopen outdoor spaces this month, if the government gives the go-ahead.