While the news of the looming closure of Bewley's historic Grafton Street cafe has been met with understandable regret from the public, it has also served to put the spotlight on the plight of tenants across the restaurant, retail and other businesses in the service sector which have been unable to operate and trade as a result of the Government's Covid-19 restrictions.
Since the imposition of the lockdown, the issue of rents, and how they would be paid had been put on the backburner for the majority of these tenants as landlords largely adopted a wait-and-see approach. But with the country now taking the first tentative steps towards the so-called “new normal”, the matter is back on the agenda as landlords and tenants look to navigate a new crisis, for which neither is to blame.
Is Bewley’s the canary in coalmine? Should we now expect to see a flood of restaurant and shop closures?
The Bewley’s case is a very particular one and the factors involved in the decision taken by its owners, the Campbell family, to close down shouldn’t be applied generally to other businesses.
Quite apart from the €1.5 million in rent due annually to landlord Johnny Ronan’s Ronan Group Real Estate (RGRE), the Campbells have cited the impact of the lockdown on the cafe’s business and the added costs they would face as a result of social distancing measures once restaurants are allowed to re-open on June 29th next.
RGRE, for its part, has called on the Campbell family to enter into what it terms “meaningful dialogue” to see if the closure of Bewley’s Grafton Street café can be avoided. Ronan’s company insists however, that it will not “subsidise” Bewley’s “successful and profitable” business when its own shareholders “are perfectly capable of doing so”.
What approach are other landlords and tenants taking when it comes to the payment of rent?
The approach being taken in each case will depend both on the type of landlord and the sector in which their tenant operates. Whatever differences they may have, all have one thing in common, which is to protect their respective investments or businesses. To do that, both share an interest in the payment of rents that are sustainable.
How are landlords likely to differ in their treatment of their tenants?
In cases where the landlord is an institution or a landlord with no debt owed on its property, the approach taken is more likely to be flexible if the tenant can prove that their business will survive where a short-term rent reduction or rent deferral can be agreed.
While the tenant will still have to pay the monies due at a certain point in the future and perhaps agree to an extension or variation in the conditions of their lease term as a solution, it ensures the survival of their business while also protecting the long-term value of the landlord’s investment.
Where the landlord is an investor with debt in place on their property, the approach they take will be dictated by the attitude taken by their bank/funder. So if the landlord’s lender or funder is prepared to vary the terms of their mortgage with the landlord, it is open to the landlord to vary the terms of their lease contract with their tenant.
That all sounds very nice in theory but isn’t the Bewley’s case typical of what has been happening on the ground?
Every case is different, and the outcome will depend on the approach taken by the tenant too, whether it is a restaurant, cafe, pub, retailer or any other business renting a premises. Several of the commercial property agents who spoke to The Irish Times agreed that the starting point for anyone who has been seeking a short-term rent reduction or rent deferral from their landlord has been to “open up their books” and “prove their case”.
“No landlord is going to meet a tenant’s demand for a cut in rent on the basis that ‘everyone else is getting one’. Where there’s a case for compromise though, that will happen more often than not. Nobody wants to have a vacant property if they can help it,” said one agent.
While restaurants and most retailers other than supermarkets and pharmacies will require a range of supports for the foreseeable future, and certainly until such time as a vaccine or effective treatment is found for Covid-19, one longer-term - though still temporary - remedy landlords and tenants are likely to adopt is turnover-based rent, i.e. where the rent being paid is an agreed percentage of the tenant’s turnover.
The use of this mechanism will of course only be put in place where the tenant can show their landlord that their business can be viable in the post Covid-19 world. Where this cannot be shown, and in cases where tenants themselves believe their business has already gone beyond the point of rescue, landlords may allow them to surrender their lease.
