COVID-19: Supporting our leased and tenanted pubs with reductions in rent

Rent a pub - Star Pubs and Bars

Whilst pubs remain closed due to COVID-19, and in addition to all the Government’s support and grants to help cover rent, salaries and other fixed costs, Star Pubs & Bars is providing rent relief to our leased and tenanted pubs on an individual basis. This page outlines how we have calculated those individual rent reductions.  

Context: Government Support

The Government has provided a significant support package for the pub sector through the COVID-19 crisis. So even whilst pubs are closed, they do still have an income during the closure period. That support (in full here), includes:

  • Cash Grant for Retail, Hospitality & Leisure Industry: businesses with a rateable value of £15,000 and under will be eligible for a grant of £10,000; businesses which have a rateable value of over £15,000 and less than £51,000 are eligible for a grant of £25,000
  • Job Retention Scheme: HMRC will pay employers a grant worth 80% of an employee’s usual wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. If licensees are on the payroll this will apply to them too.
  • Self-employed income support scheme: Government will provide a grant to self-employed individuals or partnerships, worth 80% of their profits up to a cap of £2,500 per month.
  • Business Rates Relief: rates are cancelled for 12 months
  • Business Interruption Loan Scheme: supports small and medium-sized businesses, with an annual turnover of up to £45m, to access loans, overdrafts, invoice finance and asset finance of up to £5 million for up to six years.
  • Business Bounceback loans: this scheme helps small and medium sized businesses to borrow between £2,000 and up to 25% of their turnover. The maximum loan available is £50,000. The Government will guarantee 100% of the loan and there won’t be any fees or interest to pay for the first 12 months. After 12 months the interest rate will be 2.5% a year.

Importantly, the Chancellor explicitly confirmed that cash grants were to be used as income to manage fixed business costs - such as rent - to help keep the wheels of the economy turning. He said: “On rent, the various cash grants we have announced, which are not repayable, those are direct cash grants, that is direct cash for businesses at scale relative to their rateable value… actually provide a lot of cover to cover those fixed rental payments”.

Alongside the Government’s wider support for the pub sector (as outlined above) each pub across the UK has been affected very differently by the Government’s support package. As we have a very large and varied estate of 2,500 pubs, our approach to supporting our pubs with their rent has therefore been conducted on an individual basis in a fair and equitable way. Each pub within our core leased and tenanted estate* is offered a rent reduction based on their individual circumstances.

Methodology

We’ve developed a model which uses turnover and profitability data by pub type (as defined by BBPA benchmarking criteria), takes out costs for the closure period (such as reduced marketing spend and professional fees, no Sky/BT bills) and factors in recent Government support (as listed above). In terms of the turnover and profitability data by pub type – we have applied some principles based on turnover (including the Government’s grants of £25k, £10k as well as those with no support) and then overlaid different costs as per the BBPA benchmarking criteria. These are also based on the fact that pubs are shut and therefore will incur lower costs.

Different rent and rent concession scenarios were then applied to understand the impact on pub profitability over a 12-month period. This analysis was used to inform our rent concession scheme and the summary of that is as follows:

·       Pubs receiving a £10,000 grant were offered a 75% rent concession (paying 25% of the contractual rent).

·       Pubs receiving a £25,000 grant were offered a 50% rent concession (paying 50% of the contractual rent).

·       Pubs receiving no grant inside Greater London rates districts were offered a 75% rent concession (paying 25% of the contractual rent). NB These pubs have been offered a 90% rent concession for July and August.

·       Pubs receiving no grant outside Greater London rates districts were offered a 90% rent concession (paying 10% of the contractual rent).

The calculations mean that the core of our leased and tenanted estate will receive different levels of rent reductions according to their pub circumstances. These rent concessions will apply from 20 March 2020 until the end of August. We will continue to keep this commercial support under review.

Summary

We will not be collecting any rent until pubs reopen; and during the closure period the core of our leased and tenanted estate (i.e. over 2,000 pubs) will get at least 50% off their rent. Two thirds of licensees will receive a rent reduction of 50% to 75%, while one third will receive a reduction of 75% or more. The % reductions depend on the individual circumstances of each pub. We know the rent reductions we are providing on a pub by pub basis, which represents a significant investment on behalf of Star Pubs & Bars during challenging times for the whole industry, will have a significant bearing on the future sustainability of our licensees’ businesses – and clearly we want to see our pubs thrive in the long-term.

*Free of Tie and Market Rent Only Agreements

Please note that pubs operating under Free of Tie/Market Rent Only agreements are being offered a different level of support to be consistent with the wider commercial property market. For those pubs, we have deferred rent until September, with the March and June quarters to be paid in regular instalments until December 2021. The deferred rent is to be re-paid interest free and we’ve offered tenants to move to monthly payments.