The Covid-19 pandemic may bring about the long-overdue overhaul of retail rentals, according to many experts. Landlords have enjoyed good times but if there are mass cancellation of leases landlords will have no choice but to come to the party and reset the button on how they negotiate leases. As most retailers will be in survival mode for many months, if not years to come, the crisis will bring about a new commercial reality as retail outlets, both large and small, will not be able to afford the exorbitant rentals they paid pre-Covid-10.
Following a directive by government that commercial landlords and tenants reach a compromise in an attempt to mitigate the devastating effects of the lockdown on tenants and malls, a newly-formed alliance of retail property landlords, the Property Industry Group, is reportedly offering relief in the form of rental discounts of between 15% and 100%, as well as interest-free rental deferrals for April and May on retail businesses that are not allowed to operate during the lockdown.
Some of the major clothing retailers took the lead by offering to pay only a percentage of rentals during the lockdown and both large and small retailers are insisting that, until the economy gets back to anything resembling normality, they will only pay small turnover-based rent payments, to prevent large scale bankruptcy.
Following an article by FASA Member attorneys Christodoulou & Mavrikis Inc on navigating the conflicts in paying the rent during Covid-19, FASA received many requests for a template letter that small businesses can send to their landlord on the effects of Covid-19 in respect of the ongoing and the future of your business.
Due to the effects of COVID-19, non-essential goods/services retail tenants, a substantial number of which are franchised businesses, have been forced to cease trading during the lockdown period, resulting in their inability to pay rent.
To complicate matters further, most franchise agreements contain clauses stating that a franchisor may terminate the franchise agreement in the event that the franchisee breaches any material terms of its lease agreement.
Therefore, instead of breaching your lease agreement for non-payment of rentals, and in turn falling foul of your franchise agreement, it is strongly suggested that you immediately contact your landlord with a proposed payment plan setting out how you intend maintaining your business relationship with your landlord during the upcoming months whilst you navigate the “new normal” caused by this global pandemic.
The following template may be used as a guide to assist you with negotiating with your landlord.