Key takeaways: Roadmaps to Recovery forum

Published on 13 May 2020

Photo: by Mia Mala McDonald

On Monday 11 May, Melbourne Food & Wine Festival hosted its first industry forum, Roadmaps to Recovery, an online panel looking to a world beyond COVID-19 restrictions for hospitality businesses. Here are the key takeaways from the discussion.

The economic outlook

Lisa Livis, State General Manager SME Banking at Westpac and Bank of Melbourne, gave an economic outlook for Australia and Victoria that suggested that when recovery comes it’ll be December quarter or even Q1 next year for Victoria. Overall, the recession from COVID-19 is predicted by Westpac group to lower Australia’s GDP by 5 per cent, with the deepest contraction in the June quarter this year. That said, the bounceback next year could be in the realm of 4 per cent of GDP, according to the bank’s analysis. Unemployment is predicted to reach 9 per cent by the end of 2020 before improving to 6 per cent next year.

While the news, as expected, paints a picture of some challenging months to come, Lisa was quick to remind attendees that it will pass. The upside, if there is one, is that this is a recession with a specific and clearly identified cause that has elicited lots of government action in response.

Relief for commercial tenants

Negotiating some form of rental relief is a top priority right now for many small businesses. The question is how do you do it? And what rights do tenants and landlords have?

We turned to Andrew Kaspen of Pointon Partners Lawyers, an expert on commercial lease law, to shed some light on new legislation and regulations in Victoria designed to provide relief to commercial tenants during COVID-19, including mandatory waivers on rent.

Under the new legislation, tenants who have an annual turnover of less than $50 million and can prove they’re an employer participating in the JobKeeper scheme can request rent relief between 29 March and 29 September 2020. This could be either rent deferral, rent waiver or a waiver of outgoings.

Landlords are also prohibited from increasing the rent of tenants who meet the criteria above during the March to September period.

Kaspen encouraged every tenant to write to their landlord, proving detailed information on their circumstances to initiate a conversation about their lease terms and trigger access to this temporary relief.
“The biggest risk is to do nothing,” he said. “Under the legislation you have certain protections.”

If a landlord receives a request for rent relief, the law says they must respond with an offer within 14 days. At a minimum, that offer needs to be a waiver of 50 per cent for the March-September period. Any relief over and above that is up for negotiation between tenant and landlord. Andrew pointed out that a landlord’s financial circumstances are also taken into account in the eyes of the law.

The tenant and the landlord must both agree to the terms of any rent relief, but there are bodies that you can take your case to if negotiation doesn’t get you anywhere.

How to renegotiate your lease

There are four steps to accessing rent relief:

  1. Check that you satisfy the test for an eligible lease (a small to medium enterprise participating in JobKeeper)
  2. Provide your landlord with a statement that says you have an eligible lease
  3. Provide evidence with the statement to prove your eligibility
  4. After receiving this statement, your landlord must make an offer within 14 days

Chris Lucas, founder and CEO of Lucas Restaurants (operators of Chin Chin, Baby and Kisumé, among others), had some practical tips of his own.

He says he called each of his landlords – not the agents – as soon as shutdowns had been announced in Victoria to have a conversation about the future of his tenancies, beyond the mandated lockdown.

“It was an opportunity for me to connect with them and say we’re committed but we’re going to need some help. I don’t know what that help needs to be; the situation changes week to week and month to month. But we will need some help.”

Lucas encouraged business owners to see their tenancy as a partnership with their landlord and to keep the lines of communication open.

“At the end of the day, nobody wants an empty tenancy, nobody wants to see businesses go under and nobody wants to see unemployment.”

Kaspen’s advice is to reach a temporary agreement that suits both parties, get it in writing, and try and ensure it gives you some relief beyond September, when the economy may still be tough.

“What happens in October is anyone’s guess.”

Other conversations you should have

Livis encouraged business owners to contact their bank and their accountant or bookkeeper to find out what support is available, beyond what the government is offering.

“We know that small business is the heartbeat of any economy,” she said, when outlining what support Bank of Melbourne has on offer.

Support from banks includes:

  • Repayment deferrals on business and personal lending
  • Refund of merchant fees for three months
  • Temporary overdrafts for JobKeeper payments

She also encouraged operators to focus on outgoings that can be deferred before looking into borrowing more.

Lucas advised having conversations with yourself and your team about what worked and what didn’t in your business before this crisis.

He’s using this downtime to look at every part of his business from HR, banking and finance to staff training, design of venues and what Lucas Restaurants will offer customers when they can reopen their dining rooms.

How to prepare for the bounceback

“If previous recessions have taught me anything, you’ve got to go back to zero and start again,” says Lucas.

Don’t assume anything is going to be the same, he stressed, and start planning for possible scenarios now. At Lucas Restaurants, the team is working on the assumption that business will be half of what it was when things eventually reopen. Lucas believes it could take two to three years to rebuild his business to what it was.

Livis also encouraged planning and suggested working to three scenarios: best case, where there’s minimal change to customer behaviour, through to the worst case of sustained reduction in revenue, with the third option in the middle.

“While it’s quite confronting, people who are proactive at doing this have a much better chance of coming out the other end,” she said.

She urged business owners to review every part of their value chain and whether it will still be relevant to consumers in a post-COVID world.

Kaspen also suggested doing some modelling to work out what rental costs you’ll be able to afford when trade resumes.

“To reach a deal that tenant and landlord can both live with, try and factor in some forecasts of what you think your business can afford when you reopen,” he said. “Look ahead to March 2021, July 2021. Can you defer your rent until then? Work through all possible scenarios.”

Our next industry forum will be held in early June. To make sure you hear about it, make sure you’re signed up to our Industry News emails.