COMMENT: The restaurant industry is experiencing tough times, with further interest rate hikes expected to lead to more insolvencies. Rising costs and wages combined with volatile consumer spending are all affecting the sector. But landlords can be prepared if they take the following steps, says Frances Richardson, head of real estate disputes, Linklaters.
■ Monitor how restaurant tenants are performing and be in a position to act quickly at the first signs of trouble.
■ Establish which insolvency procedure is being considered. There are differing restrictions according to whether a tenant goes into liquidation, administration or enters a company voluntary arrangement. Most regimes give rise to a moratorium, meaning that landlords are unable to pursue any claims against the insolvent tenant without permission from the court or insolvency practitioner.
■ If there is a rent deposit, consider drawing down under this at an early stage if the tenant fails to pay rent. Depending on how the deposit has been structured, there may be restrictions on the landlord’s ability to withdraw these sums once a tenant enters into an insolvency procedure.
■ Communicate with the relevant insolvency practitioner to ascertain their intentions for the property as early as possible. Often whoever “shouts the loudest” has the best chance of securing a favourable deal.
■ If the landlord wishes to obtain a vacant unit as quickly as possible in order to relet the premises, then it may be best to enter into a surrender. Alternatively, in a liquidation, it may be possible to obtain a higher level of damages to compensate for loss of future rent, if the liquidator disclaims the lease.
■ If the tenant is considering entering into a CVA, there may be an opportunity to keep the lease running, albeit on reduced payment terms. It might be that receiving a reduced rent is the best option in the short term.
