Hotel chains with leased properties trying to negotiate rent concessions

As expected, hotel chains with leased premises, like so many businesses in hospitality and retail, are asking for rent concessions amid widespread default under their leases and finance arrangements.

Negotiation of rent concessions

The Estates Gazette has reported that Secure Income real estate investment trust ("REIT") has taken action to recover arrears of rent owed to it by Travelodge following the mandatory closure of hotels. According to the REIT, rent from Travelodge amounts to 6.4% of its annual rental income.  Rent due from the last quarter day (25 March 2020) is reported to remain unpaid. 

According to a report in the Sunday Times, Travelodge has appointed accountants, Deloitte, and investment bank, Moelis, to negotiate rent concessions or deferrals with its landlords.

Enforcement of rent arrears

Enforcement options have been limited since the law of forfeiture for non-payment of rent was been suspended until 30 June 2020 under a moratorium under the Coronavirus Act 2020. However, it is important to note that this is not a reduction or cancellation of rent; it is merely a suspension of the right to enforce by termination. It remains open to landlords to bring proceedings for recovery of the rent or to serve statutory demands and pursue winding-up (liquidation) of the tenant. Secured lenders can also exercise powers of sale or appoint receivers.

Travelodge CVA in 2012

In September 2012, Travelodge was prevented from going into administration by a company voluntary arrangement (CVA).  It allowed Travelodge to reduce the rents on 109 of its approximately 500 hotels by 25% over a period of 3 years.  At  the same time, the chain put up 49 of its hotels for disposal and paid a reduced rent of 55% on those until they were sold.  The insolvency advisers at the time had advised that unsecured creditors would receive a dividend of 23.4% of their debts instead of the return of 0.2% in the case of administration.

Travelodge had traded strongly since then, with its overall EBITDA up £7.1m to £129.1m for the year to 31 December 2019.

Request to loan note holders to defer annual report 

On 17 April 2020, Travelodge also asked its senior loan note holders to consent to the deferred delivery of the Travelodge's annual report in respect of the financial year ended 31 December 2019 to 31 July 2020.

Seek advice early

Howard Kennedy's hotels team strongly advises landlords and hoteliers to seek legal advice as soon as possible if there is a dispute over covenant breaches or business reorganisation or restructuring looks likely.