SPEEDREAD: This is a brief note looking at some of the headline issues for those entering the hospitality sector (hoteliers and restauranteurs) for the first time. It is written from the perspective of the business as run by a limited company.
Running the business
The company acts through its board of directors and shareholders. Directors have day to day control of the company and usually act on a simple majority basis. Certain matters require shareholder approval, e.g. changing the name of the company or altering the Articles of Association of the company.
If there is more than one shareholder, it is strongly advisable to have a shareholders’ agreement in place. A shareholders’ agreement will typically cover shareholders’ duties, decision-making procedures for the directors and shareholders, matters for the protection of minority shareholders and restrictive covenants.
There are a number of ways that hotel premises can be owned. The freehold of the premises can be purchased, or a lease of the premises can be taken. Generally, the freehold of the property is owned by the company running the hotel or restaurant. However, it is also quite common for one company to own the premises, and a separate company (often with the same shareholders, or as a subsidiary of the first company) to operate the business itself, in order to try to protect against the premises being vulnerable in the event of a failure of the business. In that case, there would have to be an operating agreement in place between the two companies. If loan finance is required, whether to acquire the premises or for operational purposes, banks will generally require security over the premises by way of a mortgage.
For planning purposes hotels fall within a specific use class under the Town and Country Planning (Use Classes) Order 1987 (as amended). The specific use class is C1. It is currently not possible to change the use of an existing property used for a different purpose to that of an hotel, without express planning permission, or indeed vice versa.
For restaurants there are three separate specific use classes, namely:-
A3 Restaurants and Cafes – for the sale of food and drink for consumption on the premises
A4 Drinking establishments – for use as a public house, wine bar or other drinking establishment
A5 Hot food takeaways – for the sale of hot food for consumption off the premises
Under the various General Permitted Development Orders, certain changes of use from one use class to another are allowed without express planning permission being required (although any external building work associated with a change of use may still require planning permission). They are: A3 can change to use class A1 (shops) or A2 (financial services); and A4* and A5 can change to use class A1 (shops), A2 (financial services) or A3 (restaurants and cafes). (*Except buildings that may be defined as “community assets”.)
However, the Secretary of State or Local Planning Authority can dis-apply the above permitted changes, which will be revealed by a Local Authority Search of the premises in question. There may also be further restrictions that do not allow you to implement a change of use. For example, if the property is within a Conservation Area, National Park, or Area of Outstanding Natural Beauty, or if the building is a Listed Building, etc. Be aware that these uses also have particular environmental impacts such as: highway safety (parking in locations which are harmful to highway safety), noise and general disturbance particularly to residential premises and of unsocial hours; smell (from the cooking process) and visual intrusion (the external impact of extraction systems).
The Licensing Act 2003 came into force in 2005. The Act not only covers the sale and supply of alcohol but also covers regulated entertainment, for example an indoor sporting event or a performance of live music.
The hotel or restaurant will need a premises licence which will then authorise it to be used for one or more licensable activities. An application for a premises licence needs to be made to the relevant licensing authority. Unless relevant representations are made by third parties the licensing authority must grant the licence (subject to conditions consistent with the operating schedule and mandatory requirements). There is also a formal procedure to follow to transfer a premises licence.
A personal licence is also required. A designated premises supervisor will need to hold a personal licence. A personal licence authorises an individual to supply alcohol, or authorise the supply of alcohol, in accordance with a premises licence. A personal licence is valid for an initial period of 10 years from the date it is granted and subject to the provisions of the Act, may be renewed for further periods of 10 years.
The hotel or restaurant may require other licences before certain specific activities can be carried out, for example: weddings, playing live or recorded music, using televisions.
Terms and Conditions
It is important that standard booking terms and conditions are prepared and used for hotel activities, and can be useful in some circumstances for restaurants, such as party bookings. The following are some of the matters which need to be covered in the terms and conditions: reservations, deposit, cancellation terms, variations to reservations, supply of the services, final payment, liability of the hotel and customer responsibilities. Bookings made online should be set up using a reputable supplier and taking into account the requirements of the Data Protection Act 1998 and distance selling rules (i.e. The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013).
In addition to the standard terms and conditions for bookings consideration needs to be given to whether specific contracts or terms and conditions will be required. For example, if the hotel offers wedding or conference services, then separate terms and conditions will be required.
The hotel or restaurant may also have other general commercial contracts for the provision of services by external third parties. The third party may have its own standard contract which it wishes to use. The contract should be reviewed by or on behalf of the hotel or restaurant, as the third party may agree amendments to their standard terms.
Sales and Purchases
Like any other business acquisition or disposal, either the assets and business owned by the company will be sold, or the shares in the company will be sold. However, there are matters which are unique to a sale of a hotel or restaurant, both in terms of the due diligence which is carried out and also in the sale and purchase agreement. For example, the licensing position and the position regarding employees and any live-in accommodation arrangements need to be investigated. The sale and purchase agreement will also need to deal specifically with stock and deposits.
Both the hotel and restaurant industries rely heavily on part-time and casual staff. There is also a tendency for workers to be paid in cash. This can often lead to hotels being lax with their obligations in relation to employees and workers. The onus is on the employer to ensure that they have correctly classified the status of their workers – are they employees, workers or self-employed? Employers should be extremely careful here as incorrectly classifying their workforce can have significant legal and financial implications.
All workers should be provided with appropriate contractual documentation. Employees should be given a compliant statement of the particulars of their employment within 2 months of commencing employment otherwise they can make an application to the Employment Tribunal.
Many workers in the hotel and restaurant industries receive a low salary or hourly rate of pay. It is important to bear in mind the National Minimum Wage legislation. Often these workers also work long hours – employers should ensure that they have complied with their obligations under the Working Time Regulations. All employers should be registered with HMRC.
It is also common for hotels and restaurants to employ foreign workers. It is a criminal offence punishable by fines and/or imprisonment to employ foreign workers who are not legally permitted to work in the UK, and it is the employer’s duty to obtain the relevant information from any prospective employee confirming that they are permitted to work in the UK. You can be penalised if you did not do the correct checks or if you did not do them properly, so you should carry out checks on ALL potential workers BEFORE employing them.
It should also be noted that although the nationals of most European Union countries may work freely in the UK, there are restrictions on the nationals of some countries, such as Croatia.
Other important considerations
Here is a list of other important issues which any hotel or restaurant owner should consider (this list is not exhaustive):
- insurance policies (theft, damage, public liability, employer’s liability, occupier’s liability);
- product safety (such as beds, hairdryers, TVs);
- fire safety measures (fire extinguishers, materials used – furniture/furnishings, fire evacuation procedures);
- data protection;
- dealing with guests/customers with disabilities or who may need special assistance – such as breastfeeding mothers or those with allergies;
- guest registration requirements (for the purposes of immigration control);
- electrical and gas safety checks of equipment;
- food safety and hygiene;
- health and safety at work;
- workplace pension schemes; and
- VAT registration with HMRC.
Although many of the legal issues surrounding the running of a hotel or restaurant are applicable to any industry, there are many issues that apply specifically to the hotel or restaurant sector. It is very helpful if those working in this sector, and their advisers, are able to identify such issues early on and deal with them appropriately.
For further information on any of the above topics please get in touch with your usual Dixcart Legal contact or email firstname.lastname@example.org.