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Avoiding legal pitfalls when starting a hospitality business

By Nicola Kirk

- Last updated on GMT

There are many legal pitfalls to avoid when opening a hospitality business
There are many legal pitfalls to avoid when opening a hospitality business

Related tags: Hospitality sector

Whether you are opening a pop-up restaurant, starting a new hotel or launching a new concept business within the hospitality sector, here are top tips to avoid any legal pitfalls, by Nicola Kirk, head of the hospitality sector at Pitmans LLP.

Funding​  

Where investment is being provided by a third party, recording the terms will be key to the ongoing relationship between the parties. Make sure a balance is kept between your creative freedom to grow the business and the investor’s control over their investment.

Structure

Each business 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

Leases and licences can 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, a thorough review of the titles and leases of all other units will be needed to ensure that the landlord is entitled to do this, check for any restrictions on the type of pop-up business, and find out whether the landlord is entitled to keep rental income to itself or must credit it to a service charge fund.

Previously costly and time-consuming, the planning for temporary enterprises was relaxed last year to allow for small flexible pop-up uses for a single period of up to two years.

Properties in use for retail, financial services, restaurants, pubs, takeaways, offices, leisure and assembly 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.

Think about liquor and live music licences, as well as health and safety laws and food safety regulations. Operators should ensure that the appropriate insurance cover is in place from the outset. Note that specific pop-up insurance has emerged to provide comprehensive cover on a short-term basis.

Staff

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 is also 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.

Contracts

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 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.

Managing relationships

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.

Technology​ 

Growing brand awareness and identity is now technology and media-led. 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. C

are 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.

Regulations

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.

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.

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