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What should you do if your tenant is in financial distress?

Christie & Co

In this article, Stephen Owens, Managing Director – Pubs & Restaurants at Christie & Co, sits down with fellow experts from across Christie Group to discuss the warning signs that a tenant may be facing difficulty, and how landlords can take a proactive approach to mitigate risk and protect asset value.

Since the last Autumn Budget, the hospitality sector has been full of renewed discussion on the financial pressures facing pub and restaurant operators, with many seemingly unable to convert turnover into profit due to ongoing cost pressures. This is expected to continue, as the Budget failed to offer significant support or respite for the sector.

As a result, many operators and property landlords may be concerned about the risks and consequences of businesses failing.

There are several warning signs that indicate when things may not be going well:

  • Late payments on rent and service charge
  • Declining credit ratings
  • Repair and dilapidations issues
  • Lack of capital expenditure
  • Reduced trading hours – however, it is not uncommon in today’s market for pubs and bars to be closed on Mondays and Tuesdays
  • Delay or reluctance to share accounts
  • Gazette warning notices on Companies House website
  • Cancellation of TV subscriptions and fall off in entertainment in pubs and bars
  • Sudden closures
  • Slow down in social media postings and drop in retail standards upon inspection
  • Sudden changes in product range (e.g. from premium to mainstream) and/or low levels of stock generally
  • Reluctance to return calls or emails
  • Poor TripAdvisor ratings

Landlords should take a proactive role and engage with tenants to remain informed about how their business is trading. This can include:

  • Visiting the property
  • Working with the tenant operator to find solutions, for example turnover rents or moving to monthly payments rather than quarterly.
  • Having direct visibility on the business by seeking sight of trading accounts in return for assistance
  • Offer payment plans to reduce arrears over a period of time
  • Set up email notifications on Companies House to monitor a change in status for a UK limited company

What restructuring processes could happen if a tenant is distressed?

Insight from Stephen Jacobs, Director – Bank Support & Business Recovery at Christie & Co.

A proactive approach may uncover issues which can be addressed before it is too late. Early engagement, and a willingness by both parties to find a viable solution, will be key to achieving a successful outcome, if the tenant has a viable underlying business.

Restructuring could take the form of either lease re-gearing, or a surrender and regrant to improve affordability, or a deed of variation altering specific inhibitive commercial provisions within the lease. Institutional and well-advised private landlords are more willing to reset rents to affordable levels and prioritise covenant strength over headline rent to avoid vacancy and business rate void exposure.

If agreement cannot be reached and the financial position of the company worsens the tenant may turn to insolvency driven leasehold restructuring, such as a Company Voluntary Arrangement (CVA), which requires at least 75% (by debt value) of creditors who are eligible to vote to approve the process.

For larger leasehold estates, a Part 26A Restructuring Plan (RP), introduced by the Corporate Insolvency and Governance Act 2020, is also an option. This court-led process can potentially lead to ‘cross-class cramdown’ (CCC), whereby landlords may be outvoted by other creditor classes even if they unanimously reject the plan. Moreover, CCC allows the court to impose lease variations or compromises even where landlords unanimously reject the plan.

Unlike CVAs, RPs allows far deeper interference with proprietary lease rights. If the business is unviable, the tenant may choose to liquidate the company and the landlord may not be able to recover any rent arrears if there are not sufficient funds achieved from any realisation to pay unsecured creditors, or there are no assets to realise at all.

What finance options are available for landlords?

Insight from Nathan McFarlane, Senior Finance Consultant at Christie Finance.

Using finance can provide additional support if tenants fall behind and this begins to impact your cash flow.

Options to consider include:

  • Remortgaging existing assets to secure improved terms, reduce monthly repayments, access an interest-only period, or release equity to support cash flow or cover costs
  • Cash flow financing to help bridge short-term gaps
  • Bridging finance as a temporary solution while longer-term arrangements are put in place

Alongside these options, existing lenders may also offer temporary relief measures, such as repayment holidays or moratoriums to help stabilise cash flow during challenging periods.

If you’re considering any form of finance, it’s essential to fully understand the associated costs and risks before progressing, as using the wrong structure, or applying finance at the wrong time, can create additional pressure rather than alleviate it.

How important is operational visibility and stock control?

Insight from Scott Hulme, Managing Director at Venners

To give landlords greater visibility over tenant performance beyond headline P&L and balance sheet figures, we are increasingly seeing proactive operators subsidising or funding regular stocktaking programmes which can provide early insight into gross margin erosion, stock inefficiencies, and operational weaknesses that may otherwise go unnoticed.

This level of transparency creates a foundation for constructive, ongoing dialogue with tenants. Rather than reacting to failure, landlords are better positioned to identify early warning signs and work collaboratively with tenants to stabilise performance and protect income.

The ultimate objective is simple: maximise profitability while reducing cash unnecessarily tied up in stock. This is particularly critical where tenants are under financial pressure. Effective stock control enables operators to closely monitor margins, yield, wastage, overpouring, and potential theft – key areas where profit leakage often occurs.

Landlords should encourage and support tenants in maintaining consistent monitoring disciplines. Common hidden risks, as reported by Venners, include:

  • Selling prices that fail to deliver adequate margins
  • Staff overpouring or incorrect spirit measures
  • Draught system inefficiencies (e.g. fobbing)
  • Unrecorded stock transfers (e.g. to kitchens)
  • Unauthorised consumption or poor controls on post-mix products

By taking a more hands-on, data-informed approach, landlords can play a crucial role in helping struggling tenants regain control of their operations, ultimately reducing the risk of business failure and protecting rental income.

Summary

It is important to remember that successful businesses can fail due to unforeseen cash flow issues or carrying too much debt – the business itself may well be trading well, with the cause of failure not related to business performance.

Financial stress can take a significant toll on tenants, and it is also important to be aware of the support that is available. Charities such as the Licensed Trade Charity offers a 24/7 helpline, wellbeing support, and practical financial advice for those working in licensed hospitality, to help in difficult periods.

Landlords who take a proactive rather than passive approach will be better placed to protect their investment and help the tenant’s business avoid failure. However, if the situation worsens and the tenant needs to exit, there remains demand from other operators looking for opportunities in the sector.

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For more insights about the pub and restaurant property market or to get in touch, visit: https://www.christie.com/sectors/pubs/

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