A different picture

It became the feel-good cliché of the credit crunch '“ when the chips are down, downtrodden citizens flock to the cinema to drown their financial woes in onscreen escapism.

Nobody can resist a ream of stats proving that the nation's love of leisure will never bow down to something as dull as economic catastrophe. So it was with the usual flurry of jubilant headlines that on 21 July, John Woodward, chief executive of the UK Film Council, boasted of another recession-busting year. Record box office receipts ch-chinging in at £944m were reported thanks to a bulging numbers of bums on seats. 'In terms of sheer economic value, jobs and overall contribution to the economy, film has had a truly great year and is more than punching above its weight,' beamed Woodward.

Five days later, his job was abolished. Spying a few quick bob to be saved, the government's axemen slammed the clapper board on the council, insisting culture would benefit in the long run.

These two faces of the film industry, described by Woodward as the 'increasing contrasts' between funding and turnover, illustrate the predicament that lawyers throughout the leisure sector have been facing over the past year.

'In London, strong performance of many hotels has been reported by most of the main hotel consultancies,' explains Dawn Stallwood, a specialist hotel lawyer working with Thomas Eggar's leisure team. 'The popularity of the 'staycation' has had its impact on London and other visitor attraction locations, as UK holidaymakers decided to take their breaks in the UK.'

But while the public face of business looks on the bright side, raving about the resilience of the leisure pound, behind closed doors a different picture emerges.

Branching out

TLT's head of leisure, Julia Lucas, believes the devastation of the recession is still causing serious issues below the surface and has been responsible for a revolution in the attitudes of the leisure clients that have been able to cling on.

'The economic downturn has had a major impact on the leisure sector and has meant that operators have had to look for new, complementary revenue streams,' says Lucas. 'One example is the increase in the number of restaurants offering overnight accommodation, now commonly known as 'restaurants with rooms'.'

The increasingly 'savvy and demanding' punter, agrees Stallwood, is pushing prices down, forcing a desperate hospitality sector to diversify, landing advisers with all the paperwork that entails.

And the leisure sector's dependency on discretionary spending means that as purse strings tighten, so does competition. 'Leisure businesses have been looking to add greater value to customer experiences in order to differentiate themselves and win business,' continues Lucas. 'We've seen this with pubs, cafes and hotels where they've introduced wifi facilities. Operators have also responded to economic conditions with creative pricing offers and special packages to attract business,' according to Lucas.

Legal teams are finding their clients more tentative when it comes to devising new deals, causing demands for closer scrutiny of contracts. For lawyers, this change of tack means constant calls from clients needing attention. 'The last 12 months have been challenging for hoteliers,' says Stallwood. 'Having close relationships with the professionals '“ accountants, solicitors, banks and so on is therefore important for hotel owners.'

Working for nothing

This belief that in times of need the boldest business plan will reap the biggest rewards has inspired a spate of drastic restructuring. This is good news for the employment lawyers, who have enjoyed a steady trickle of cases courtesy of the leisure sector.

As firms plunder the payroll to ease cashflow, Nick Siddall, barrister and head of the employment team at Kings Chambers based in Manchester and Leeds, has noticed some cut-throat revolutions in terms and conditions. 'There's a growing trend among employers in the leisure industry that are exposed to peaks and troughs in demand to consider zero-hours contracts,' he says. 'It's become too expensive for some of them to retain a full-time complement of staff when things like the weather can have a direct impact on customer numbers.'

Like the façade of buoyancy in the film industry, leisure operators up and down the country are finding themselves having to plug gaping holes in the fundamental aspects of their business to make sure they are still around when the consumers do decide to spend.

But Siddall warns that rash restructuring can land struggling leisure providers in further danger of collapse. 'Zero-hours contracts are legal of course, but they are rarely popular. Coupled with that, it's very difficult to justify their introduction as the recent employment tribunal case of Kellaway v Paragon Automotive found.'

The case concerned workers at a car logistics firm in Grimsby who objected to the imposition of a contract giving the bosses the power to decide what hours they could work on a sporadic basis. Union members lodged a joint claim for unfair dismissal, with several reaching out-of-court settlements reinstating their original 60-hour contracts. An employment judge in Leeds granted two members compensation.

'The basic situation is that if the employees do not agree to a variation in their employment contracts, the employer might be forced to terminate their jobs and offer them new ones immediately afterwards on the 'zero-hours' terms so either way they may lose valuable employees,' continues Siddall. 'This isn't without risk and companies could face claims for unfair dismissal.'

Clients genuinely finding themselves at the mercy of rollercoaster cashflow can consider more caustic solutions, however. 'Businesses in the leisure sector in resorts like Blackpool (above), Southend or elsewhere are genuinely impacted by seasonal peaks and troughs and with proper justification they would have an arguable defence,' says Siddall. 'The key is to prove that the needs of the business were sufficiently pressing that the actions were fair and reasonable; if they can do that, the offer of zero-hours contracts could count in their favour.'

Bedtime stores

Over in the hotel sector, a similar focus on squeezing employers' and suppliers' contracts continues. 'There have been redundancies '“ back of house along with streamlining and review of supply chain arrangements,' says Stallwood. 'Many hoteliers have second and third sources of supplies in place in case suppliers find themselves in trading difficulty.'

Spending is keeping businesses afloat, but the aftershock of the downturn continues to affect the sector at a much deeper level. 'Some hotel groups have gone into administration, with the banks holding and trading on the hotel assets with assistance from interim hotel management companies,' says Stallwood, whose Gatwick-based firm deals mostly with the relatively hardy South East market. 'Rather than offload hotel assets into the market, banks have been, in the main, holding on, in the hope that real estate valuations improve.'

Uncertainty over valuation problems has also created a dearth of mergers and acquisitions, tying people down to businesses they may be ready to retire from.

'The lending for new hotel developments in 2009 has also been incredibly tough, with very few going to credit committee,' adds Stallwood. 'Although the market is relaxing slightly, new developments are struggling to find more traditional financing solutions.

'A few high-profile off-market deals in London recently have provided a little more deal flow but knowing how to value hotels in the current economic climate remains difficult, so M&A activity is quiet, particularly for regional, independent and family-run hotels.

'This is problematic as there are a good number of hotel owners, for example those at retirement age, who are ready to exit '“ but have no realistic way of achieving this, unless the buyer has little need for debt finance.'

New-found consumer power also means more complaints, with lawyers charged with settling more disputes from people trying their luck in the hope of discounts, refunds or upgrades.

'When added to the power of TripAdvisor.com to showcase the good, the bad and the ugly in hotel experiences, managing guest complaints effectively is crucial, as is dealing robustly with spurious or unfounded complaints or poor service allegations,' says Stallwood. 'I am encouraging my clients to be proactive and monitor all social media channels where their hotel brands are mentioned. Most claims are settled but an understanding of how to deal with complaints escalation certainly helps hoteliers and their general managers.'

So, consumers may be calling the shots, and the financial ground underpinning the industry may be rocky at best, but as long as a client is willing to adapt, all is not lost.

'The next 12 months will, I think, continue to be challenging but perhaps a little less so,' Stallwood concludes. 'A positive for the hotel industry generally is that the global financial crisis has caused strategic and operational reviews to be conducted '“ the result of that being some hotels are now more efficient, have proper contracts and policies in place and are more aware of their business risks.'

Licence to bill

Looking ahead, leisure lawyers are keeping their eyes firmly on the coalition's proposed overhaul of the Licensing Act. Announced by the Home Office last month, the legislation shake-up intends to give local authorities and the police stronger powers to remove or refuse licences, including a clamp down on the restrictions for alcohol sales.

Julia Lucas comments: 'The Licensing Act consultation is of real significance to those in the leisure sector. The legislation will be a major theme for the leisure industries such as casinos and bars over the next few years as what's been proposed is a radical rebalancing.'

Under the scheme, which is currently subject to a six-week consultation, councils and the police would be granted the power to permanently shut down any shop or bar found to be selling alcohol to children, with maximum fines doubled to the tune of £20,000. The tumbling pub market argues it will be dealt a further blow with the idea of giving councils the opportunity to hike fees for late-night licences.

'Rather than the usual tinkering at the edges, this is an extremely wide-ranging and potentially radical reform of the alcohol licensing legislation,' warns Lucas. 'The consultation proposes giving greater powers to local authorities, the police and licensing authorities and stronger controls on what businesses can sell, at what price and to whom. Should these proposals become law, they will have a fundamental impact on how leisure businesses operate.'

Copyright & permissions