Backhouse Jones Watermark

Implications of COVID-19 – Key issues for the operator

07 August

For many operators, the implications of the COVID-19 pandemic have meant a significant reduction in income. This note focuses on two issues that we have been seeing more frequently for the operator during the pandemic.

Termination of vehicle finance agreements

Vehicle finance and lease payments are one of the greatest outgoings for operators and many have benefitted from payment holidays and a reduction in monthly payments. However, some operators have struggled to negotiate variations to their finance agreements which has left them with vehicles that they are unable to use and unable to afford to keep.

We have seen some cases where the finance/lease company inform the operator to return the vehicle, either at the operator’s request or because the operator is unable to afford the monthly payments, and the operator has willingly returned the vehicle, believing that no further payments would need to be made. Commonly, however, the operator is later faced with a breach of contract claim against them for failing to maintain the monthly payments.

Many finance and lease agreements do not allow for the operator to terminate the agreement under any circumstances and any variations of the agreement would be at the discretion of the finance company. There is also usually a clause in the agreement stating that where the operator fails to keep up the monthly payments, the vehicle can be repossessed but the operator will still be liable for the sum of all the outstanding monthly payments up until the expiry of the term of the agreement, known as a termination fee. Most agreements will include a personal guarantee, signed by an individual of the company, meaning that if the company fails to keep up the payments and fails to pay the termination fee, the individual will become liable for this payment.

Operators must therefore ensure that if they are returning a leased or financed vehicle, they obtain confirmation in writing from the finance company that the return of the vehicle will bring the agreement to an end and that they will not pursue the company for any breach of contract and termination fee. If you believe that a finance company is allowing you to return a vehicle at no further cost to you, you should contact our dispute resolution team who will be able to advise you on whether this is the case or whether they may have a potential claim against you for breach of contract.

Flexible terms for coach holiday payments

Although coach holidays and tours are now able to go ahead, it is still important that operators have flexible terms and conditions in place with their suppliers, such as hotels and other entertainment venues to cover them in the event that a customer can no longer attend for COVID-19 related reasons and requires a refund.

Government imposed local lockdowns have been affecting some customers’ ability to attend a holiday and, in these circumstances, it is likely that you would be required to issue a full refund or at least offer a credit note. Operators also need to forward plan for the potential of a second wave of COVID-19 affecting their ability to carry out the holiday or tour.

Operators need to ensure that they have a written agreement with their suppliers that, in the event that a customer can no longer attend due to COVID-19 related restrictions, the supplier will refund for that proportion of the holiday. For example, terms with a hotel may require them to refund the cost of that particular customer’s hotel room. The contract should also deal with circumstances where the operator is no longer able to provide the holiday due to further COVID-19 restrictions being imposed.

Operators should also review their Business Interruption insurance policy wording to make sure that it will provide cover in the event of a second wave of COVID-19, particularly if insurers had previously refused to pay out due to the COVID-19 restrictions.

The Financial Conduct Authority (FCA) is currently running a test case through the Courts which will provide a decision on whether insurers will be required to pay out on policies where they had previously refused due to the wording of the policy. This could be beneficial to operators who have had a COVID-19 related claim refused due to the policy wording. Further information on the FCA test case is available on our website and another update will be published once the court decision has been released.

Should you require help drafting terms of your agreements with suppliers, or help with understanding the wording of your insurance policy, please contact us at


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