Whether you are opening a pop-up restaurant, starting a new hotel or launching a new concept business within the hospitality sector, there are countless things to prepare. Below are Pitmans LLP’s top ten tips for those looking to avoid any legal pitfalls.
Funding for a new business may come from various sources, whether that be your savings, bank loans, “business angel” private investors or venture capitalists. Where investment is being provided by a third party, ensuring the terms governing the relationship are recorded will be key to the ongoing relationship between the parties. It is important to ensure that a balance is kept between allowing you creative freedom to grow the business and providing the investor with some level of control over their investment.
There are many ways to structure a business and this should be considered at an early stage in the planning process. Each structure involves different responsibilities and liabilities, as well as being treated differently for tax purposes. The method of extracting profits from the business will also vary depending on the structure chosen. Whether you are considering trading as a sole trader, a limited company or a partnership you should discuss the benefits and drawbacks of each structure with specialist advisors.
- Property and licences
Location and fit out are not the only issues to consider when setting up premises for a new enterprise. You will need to negotiate leases and may need to deal with planning issues, each of which may take a significant amount of time to finalise. For example, If pop-up restaurants or bars are to be located on the common parts of shopping centres or out of town retail parks there will need to be a thorough review of the titles and leases of all other units to ensure that the landlord is entitled to do this, and to check whether there are any restrictions on the type of pop-up business, in addition to whether the landlord is entitled to keep rental income to itself or must credit it to a service charge fund.
The planning regime has previously hindered the letting process for temporary enterprises as obtaining permission for a change of use was costly and time consuming. However, the regime was relaxed last year to allow for small flexible pop-up uses for a single period of up to 2 years for properties in use for retail, financial services, restaurants, pubs, takeaways, offices, leisure and assembly uses which will be able to change to retail, financial services, restaurants and cafes and offices, subject to certain restrictions. This means that tenants can more easily be secured quickly and on a temporary basis.
There is also, subject to certain restrictions, no requirement for planning permission for any use of land, including any moveable structure, if the use does not continue for more than 28 days in any 12 month period For this reason, many pop-up restaurants and bars deliberately only stay open for 28 days or less.
Various licences may also be required, such as liquor licences and those permitting the playing of music. Health and safety laws and food safety regulations should also be considered, and operators should ensure that the appropriate insurance cover is in place from the outset. All of these matters will need to be in place prior to opening and the time these will take should be factored into any launch timetable.
Traditionally insurance products for restaurants and bars have only been available on an annual basis, so short term tenants have to overpay or suffer cancellation penalties. However specific pop-up insurance has emerged to provide comprehensive cover on a short term basis.
It is not uncommon for staff in the hospitality sector to be employed on a short term basis, so it is possible to obtain well trained staff relatively quickly. You will need to gauge your requirements for such staff, together with longer term staff to fill management roles, and put in place contracts of employment. Employment contracts can be put together using a generic form and can therefore be relatively cheap to put in place.
- Branding and PR
There are several issues to consider when creating a brand for a new venture. You will need to ensure you are not breaching the rights of third parties when designing any slogans, logos or brand names. It will also be important to register any brand you create to prevent the infringement of your rights by third parties and potential damage to your brand. The overwhelming use of the internet has meant that many entrepreneurs are having to come up with quirky new names to ensure they can secure web addresses and intellectual property rights.
In recent years many new businesses have used pop-up ventures to test the water and generate a marketing buzz to establish a new brand, whilst also providing an effective way for professionals to gain exposure of their skills in the field of hospitality as they seek investors and attention prior to opening a restaurant or another culinary concept. They are also used by established brands at festivals and at other significant outdoor events where large turn outs are expected.
Any new business will involve dealing with a number of different parties and so robust contracts should be put in place to govern relationships with suppliers. Having agreements set out in writing will mean that any problems should be easier to resolve further down the line.
Businesses in the hospitality sector, like most businesses, rely on the performance of supplier contracts to enable them to fulfil contracts with others. Accordingly, terms of supplier contracts should tie into the timescales and obligations which the business has agreed to fulfil with others.
Ultimately, legal advice should be taken on the negotiation of terms and structure of all contracts so as to best protect your position.
- Managing Relationships
From a commercial perspective, businesses should anticipate when problems are developing. If a supplier’s performance is deteriorating, monitor this and act early. Open dialogue with the supplier so that you can understand the reasons for their problems, pre-empt any failures and endeavour to achieve a workable solution for all parties. It may be worthwhile considering re-negotiating the contract and putting alternative arrangements in place at an early stage, and if that is not workable, legal advice on termination should be obtained.
Growing brand awareness and identity is now technology and media led. From trusted review sites to online and app discount vouchers, hotels and restaurants are making full use of social media to manage marketing costs and reach a wider audience. A well thought out social media strategy can be used to raise awareness for a launch, offer targeted discounts and to grow a database of loyal customers who can be targeted in the future. Care should be taken when holding customer information to ensure compliance with Data Protection law, non-compliance with which can lead to complaints and/or penalties, as well as damage to a business’ reputation.
You should continually monitor new laws and regulations that are coming into force that could impact your business, and ensure you take appropriate advice to ensure your business is well prepared to make any necessary changes to its operations sufficiently in advance.
For example, from 13 December 2014 the new EU Food Information for Consumers Regulation comes into effect in the United Kingdom. It requires all food distributors to provide allergen labelling and information to customers. These new requirements and the more prescriptive details increase the regulatory burden and costs on hospitality businesses, and require businesses to plan in advance to ensure their staff are adequately trained, their suppliers are aware of the requirements and menus are amended appropriately in advance.
- Future Plans
It is essential that your business planning does not end when the doors open, but that it continues as the business progresses. This will enable you to take advantage of gaps in the market, or expansion and funding opportunities as and when they arise. It will also enable you to identify and combat risks to your business, whether that be from changes in legislation or rival businesses.