Rental relief the next piece of the puzzle for pubs

02 April, 2020 by Vanessa Cavasinni

With the welcome announcement of the JobKeeper payment at the beginning of the week, operators have had some good news in retaining a key part of their business. The next major step in keeping businesses viable is rental relief for operators of leaseholds.

Many pub businesses were forced to stand down large swathes of their workforce within days of the news of the nationwide pub shutdown in order to combat the spread of COVID-19. This week’s announcement of the JobKeeper subsidy from the Federal Government, has allowed many venues to re-hire those staff members and keep them on the books for the next six months. It was a move welcomed by many within the industry.

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At Solotel, roughly 1600 staff were stood down with their leave entitlements paid out. CEO Justine Baker says the JobKeeper subsidy will allow the business to retain that staff until the closures are lifted.

“We fully support the JobKeeper program announced earlier this week. This will allow us to support our employees and maintain a connection with them during our closure. We are now waiting on the Government to pass the legislation next week to understand the details and will update our staff on our plan.”

The news has taken some of the pressure off hotel businesses across the country.

“One of the key components of all this – holding together your workforce – is being addressed by JobKeeper. That’s a really big piece of the puzzle. I think that aspect has created a lot of confidence in the rearguard of the sector. So if you accept that you’ve got pent-up demand – that customers are going to want to engage with each other in these venues very badly as soon as this is over – the workforce is going to already be in place,” explains Morgan Kelly, restructuring partner at KPMG.

While this takes care of what is the biggest expense for the venues, the other major expense for leaseholders is rent. While Prime Minister Scott Morrison announces a six-month moratorium on evictions of leases, he also called on landlords, tenants and financiers to negotiate their own bespoke arrangement on a case-by-case basis.

Many operators have welcomed the JobKeeper payment, they are now asking for more concrete guidance or aid from the Government when it comes to rental relief, including James Thorpe, operator of the Oxford Tavern and The Taphouse in inner Sydney.

“The wage guarantee is unprecedented, and for businesses like ours who have managed to successfully pivot to a delivery based offering, will prove to be a huge relief to the bottom line. What we need now is a legislative framework for an equal bargaining field on commercial leases.

“This could be as simple as the government making it legal for either party to terminate a lease. Saying that we should negotiate with our landlords, as if that hadn’t already occurred to us, has fairly little utility when you’re staring down the barrel of having to pay out, in our case, up to eight years worth of rent and outgoings.

“Many of us owners have personal guarantees attached to the leases, so the threat of winding up the business falls deaf on landlord’s ears. We are incredibly lucky to have our landlords at the table, but many are not, as we’ve seen littered in the media today. Everyone needs to share in the pain, not just tenants, but we need a legislative framework to ensure fair outcomes for everyone.”

While Kelly urges that for lessees to continue speak openly and honestly with their landlords, he also urges the latter to be amenable, in the interests of both parties.

“The best chance for landlords to maintain or recover value from their lease agreements, is to have the existing operator in there.”

A handy guide for leaseholders on the options available to you can be found here.