Since the end of the COVID-19 pandemic, licensed retailers have faced significant challenges. These included: changing customer spending habits; Low Emission Zones; alcohol duty versus competitive pricing; spiralling utility costs; rising staff expenses; and increasing overheads. Public transportation has suffered, with ScotRail operating a reduced service and late-night buses being withdrawn.
The insolvency profession as a whole, and here at McLaren Insolvency, we have identified several key issues when advising directors and business owners, in particular in licensed trade and hospitality businesses, where you can take steps to avoid issues, costs and headaches.
Unclear treatment of rent arrears
Unclear treatment of rent arrears: rent arrears accrued during the pandemic were often ‘set aside’ or ‘managed’ by landlords with a promise these would be reviewed later. Tenants often understood that these arrears had been reduced, written off or that there was an undertaking by their landlord to do so. Unfortunately, the harsh reality is that landlords then decided all of the rent arrears had to be paid. The answer is to ensure this is formally documented, in other words, in writing, and that there is a proper and clear agreement on what is being reduced or written off. A formal agreement such as a side letter or amendment to the lease is best but even an email with clear agreement on amounts, actions and time scales is better than having nothing else in writing or only vague assurances. These rent arrears are still raising their head even 3 and 4 years later and, without certainty and clarity, discussions had at the time everyone was under pressure can later be denied. That means the rent arrears may still be deemed to be due and payable and may be added to existing personal guarantees.
Personal guarantees
It should be made very clear in a lease or other agreement if a personal guarantee is being sought from the directors, an operator or anyone else involved in a business. Separate advice should be taken on this, and the personal guarantee should be highlighted so the person signing the agreement is under no illusion that they are putting their personal assets on the line. This is not always done and can result in issues if there are rent arrears or other sums outstanding which landlords then insist are paid by individuals. Joanna Millar is an experienced corporate and licensing solicitor, and she says: “Always take legal advcie before signing a document. It may be presented to you as ‘just a lease’ or ‘something very simple’ but if there is a personal guarantee or other very onerous terms in it, you could be signing away far more then you realise and possibly more than you want to. Beware of being put under pressure by third parties to sign something very quickly or being given assurances that it is a ‘standard’ document’ so you can ‘just sign it’. A small cost up front can save a much larger cost, and possibly a lot of heartache, later.”
Dilapidations
These relate to property maintenance at the end of a lease or enforced modernisation work required by the landlord. The issue for many licensed trade operators is that they have spent a lot of money, often running to a six-figure sum, fitting out their premises. This can be repeated over time, upgrading and redoing fixtures and fittings to keep them properly maintained and meet changing trends. At the end of a lease, if the premises is to be handed back to the landlord, the lease often requires that it is returned it back in the condition it was received in. If that was a blank canvas, it may be it has to be reinstated to an empty shell. Joanna suggests: “Operators should consider negotiating with a landlord re dilapidations as often landlords will see the benefit in a fitted-out unit and will be happy to come to some agreement. If not, ignore dilapidations at your peril as these can result in huge costs.” At McLaren Insolvency we often see the cost of dilapidations taking operators by surprise, particularly where they have ignored this, and landlord have done the dilapidation works then rendered a bill to the tenant. Landlords can be entitled to do this if the lease allows and it is a common provision in leases, including those for licensed premises. This can significantly dent a tenant’s budget, which could be so significant it is a death knoll for what the operator thought was a business capable of saving.
HMRC collections
HMRC is becoming increasingly aggressive in its collection efforts and is now less likely to accept lengthy Time to Pay agreements. Although it may have taken some time to get to, they are now addressing Bounce Back Loans unpaid or used for incorrect purposes. These are only underwritten if obtained properly and sued correctly. If not, or if you are in any doubt about issues with CBIL’s and Bounce Back then contact us to discuss.
In the meantime, please contact us, in confidence, for a chat or to discuss your business in detail at:
George Lafferty, McLaren Insolvency Practitioners Ltd, 250 West George Street Glasgow G2 4QY; Tel: 020 3746 8897; Email: george.lafferty@mclarenglasgow.co.uk
These are only a few of the matters which we hope are relevant to you and your business. Over the next articles, our contributors to On Trade Scotland will consider many issues including: Staffing challenges and some basic employment fixes; Director earnings and how to navigate how to take money from your business depending on your structure (including PAYE, Directors’ Loan Accounts, dividends, and personal expenditure being charged to company accounts); Business planning, including protecting the shares or business ownership, rewarding employees to keep them loyal and avoid them leaving, ongoing business plans (busting the myth these are a black art) and cash flow analysis; pointers on record keeping and business admin (the bane of all business operators’ lives!) including looking at the consequences of incomplete books and records, and failure to submit HMRC tax returns; and also succession planning looking at both foresight in succession planning and mergers and acquisitions, which can positively drive long-term profit maximisation.
