The COVID-19 virus pandemic continues to have an effect on the hospitality industry, with certain forecasts suggesting that it could take more than five years for this sector to fully recover. The complexity and importance of the hospitality industry and its impact on the economy in general and other local businesses is making it more difficult to find one-size-fits-all solution.
The Serbian Government has in the past nine months tried to help this distressed sector by introducing various measures starting from cash aid in the amount of 350 Euros per bed and 150 Euros per room. The second tranche in the same amounts was announced in February 2021. This was granted under the condition no employees are dismissed before the end of the year. Also, one of the measures introduced by the Government were loans for liquidity and working capital from the special republic program of the Development Fund. Loans are granted for up to a five years repayment period. The arrangement includes a grace period of up to two years and a repayment period of up to three years with an interest rate of one percent per year. The loans range up to RSD 180 million in total.
The measures were initially welcomed by hoteliers, but are considered to be of a short breath, since there is no sign of the crisis ending.
So, what are the main challenges with potential legal consequences that hoteliers face in the pandemic situation?
Keeping the businesses going
Majority of hotels (especially in bigger cities) were forced to temporarily close their business since that was more pragmatic and cheaper solution. Other Hotels which decided to remain open are faced with rigorous health and sanitary regulations in terms of guests, staff, with the necessity of conforming to guidelines relating to safety precautions. This caused the industry to increase their costs even during the radical decline of their business operations. So, the question arises whether it is profitable at all to keep the business going, giving the current government health restrictions? It is important that the hotels re-assess all their fixed and variable costs and current obligations starting from taken bank loans, supplier contracts, employment contracts, tax obligations. All these obligations put hoteliers in potential legal risks which can be prevented if addressed proactively.
Revisiting business strategy is another option for some of the city-based hotels -recategorization and offering their facilities as office space was among the most common choices.
The pandemic poses numerous challenges, primarily in the domain of human resources, and the domain of labour and employment law. Hoteliers are seeking legal advice in terms of regulations relating to employment salaries disbursement, downsizing, as well as legal treatment of staff suffering from coronavirus or those in self-isolation. Also, even if they have temporarily closed their operations due to pandemic, the hotels usually consider to keep their key staff in order be able to open quickly when the opportunity arises. This might be the right time to start thinking about restructuring the business operations and redrafting employment contracts, in order to minimise future risks of potential employee lawsuits deriving from employment termination issues. The issues which can also be of interest are related to compensation for damages that might occur due to risks which the guests and employees are exposed to in pandemic times
Hotels, along with other businesses, can find themselves in loan default or complete inability to performs obligations due to the pandemic and the ensuing circumstances. Reassessment of loan contracts and renegotiating the financial terms would be the step in the right direction. For majority of hotels in COVID times getting a loan for working capital needs presents a problem on its own, due to increasing industry risk.
On one hand majority of suppliers in hospitality industry (HoReCa, chemicals, uniform suppliers, etc) face the risk of not being able to fulfil their contractual obligations. On the other, some hotels could be in the breach of their contracts regarding lease of their event facilities. For both parties, this raises questions of the parties’ reliance on the “force majeure” clause contained in their contracts, as well as whether the circumstances surrounding the state of emergency may be grounds for termination. These legal risks require detailed analyses of every specific contract.
Constant and open communication between the parties involved is often prerequisite in these circumstances.
One of the future steps that Serbian Government promised to reconsider is the reduction of VAT rate from 20 to 10 percent, for food in hospitality facilities, in order to help them to overcome current difficulties. Also, tourist vouchers are being issued by the Government to help mostly smaller tourist resorts throughout Serbia and less so in the major cities. The question remains when this crisis will end and what to do in the meantime.
COVID 19 crisis has hit the hospitality sector hard, and it will take more than just a few government measures to bring it back to health. The fact that this industry is generic and influences other market players, makes it even more difficult to help heal it quickly. It rather needs a systematic approach and a long-term strategy. While waiting for future government subventions, local market players in the hospitality sector have to redefine their business strategies and proactively asses both legal and business risks, especially taking into account that events similar to this might reoccur in the near future.
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The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.