Life after lockdown part two… Five key points for landlords and tenants in the retail and hospitality sectors

We have been thinking about the ‘new normal’ for some time but it seems that one of the biggest tests for what life after lockdown will really look like – the potential game changer – is the re-opening of the hospitality industry. In May, we discussed here the issues faced by both landlords and occupiers of office premises as they began to re-open. Many of these points will likewise apply to the retail and hospitality sectors but here are five further points to be considered as we enter the next stage of life after lockdown.

1. A new look for shops, bars and restaurants From changes in partitioning to create a one-way system to complete refurbishments to make social distancing work long-term, tenants should be careful to consult their lease before taking any measures that may require landlord’s consent and, if necessary, take specialist planning advice to ensure that any proposed changes comply with planning laws and regulations.

Utilising outside space will become key and there is some good news from Westminster City Council which has published a ‘reopening guide’ incorporating a plan to widen a number of pavements and close selected roads to create outside dining spaces in the City. Licences for outdoor seating and dining will still be required but Westminster’s plans to relax the rules include a fast track process to assess applications for outside seating licences and, for those businesses that already have outside trading with tables and chairs, they will be able to operate without applying for a licence so long as table service is provided. Here is a link to Westminster’s full proposals.

2. Health and Safety Keeping staff and customers staff safe will be of utmost importance and a clear, open dialogue between landlords and tenants will be key to achieving this. Landlords and tenants should be discussing how any common parts will be managed, and this could extend to conversations about who is liable for customers queuing outside premises. Such discussions will need to include neighbouring tenants and landlords to ensure that queuing is managed in a way which complies with social distancing rules and doesn’t prevent access to neighbouring premises. Landlords and tenants will need to work together to ensure that the stringent rules around risk assessments and the safety of staff, visitors and customers are complied with, as they could face serious ramifications for non-compliance.Fox Williams’ employment team have published an article covering issues regarding health and safety in more detail, which can be viewed here.

3. Technology The emergence of new technology has been a continuous talking point since lockdown began. How would we have coped without it? Landlords and tenants should be prepared to embrace app-based technology to enable businesses to maximise their capacity whilst complying with social distancing. This may include advanced booking and ordering systems, keeping temporary records of customers and visitors, which must be stored responsibly and within data protection laws, and monitoring the use and footfall of larger, multi-let premises.

4. Turnover rents It is likely that we will see a shift towards a base rent with a top up turnover rent as a means by which both landlords and tenants of retail and hospitality space can share in the potential risks and rewards of the tenant’s business; where trade is good and revenues high, the landlord will receive an increased rent and, in difficult trading conditions, the tenant will be insulated to the extent that it only has to pay a top up turnover rent where the turnover from the premises exceeds the base rent. Turnover rent clauses must be carefully negotiated, particularly when taking into account the rise in online selling, ‘click and collect’ models and the use of the store as a showroom driving online sales. Whether ‘total occupational deals’ or other alternative models become popular will depend largely on the relative bargaining positions of landlords and tenants. Fox Williams have published an article discussing turnover rents from a fashion retail perspective which can be viewed here.

5. New Landlord and Tenant Code A new voluntary code of practice has been prepared by the government with a view to help improve landlord and tenant relationships. Collaboration is key and the code suggests that the parties should work together to ensure there is transparency, particularly surrounding rent and service charges. The code will only go so far however and, as one of the hardest hit sectors, the hospitality industry will undoubtedly continue to look to the government for more robust support.

Collaboration and creativity will be key to the survival of the retail and hospitality sectors and without a doubt this new approach will be a vast improvement on the combative relationships that have existed between landlords and tenants in the past.

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If you have any questions about these issues in relation to your own organisation, please contact a member of the team or speak with your usual Fox Williams contact.