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Retailers closing the locations and certain major retailers stating they will pay employees during this time.

Next up is figuring out those monthly rent payments.

The consequences of still having to pay rent on a location that is not in business could deal a huge blow to some retailers that are already strained for cash. Typically, rent is one of the retailer’s biggest expense items. Couple that with the fact that many retailers’ sales are about to shrink drastically, so long as consumers are holed up at home and stocking up on groceries and household essentials, not discretionary items like shoes and shirts.

The closures raise a huge question. In some of these instances, stores are closing as the shopping mall itself remains open for business, per the landlord’s decision. Retailers are left wondering: Do we still have to pay?

Meantime, mall and shopping center owners certainly do not want to lose a batch of their tenants all at once. That could put their properties at risk.

I personally believe there needs to be more alignment in how this partnership between tenants and landlords will evolve.

I am hopeful that many landlords — namely the ones in a better position with more cash on hand — will be able to work with retailers on rent abatements, meaning paying less rent, or rent deferrals due to COVID-19.

‘Act of God’

How long will this last?

“15 days? Three months? Of course, the landlords’ other concern is that their tenants will go out of business,They need their tenants. There will be somebody to take their place eventually. But it is a lot of revenue being lost, every day, that nobody budgeted for.” 

Many retailers will have what is known as business interruption insurance, real estate experts said. But, typically, a pandemic caused by a virus is not covered by that. Instead, it is more for fires and natural disasters.

The next step that many retailers are taking is figuring out if force majeure, or “Act of God,” clauses justify tenants’ suspension of performance of their duties under their leases — primarily operating stores and paying rent.

The answer to this, will depend on the specific contract language, local law and the “causal connection between the pandemic and the particular tenant’s inability to meet its lease obligations.

 

It is paramount that you as a Tenant or Landlord carefully review the Lease Agreements. Seek Legal Advise and then have a serious discussion with your Landlord. Please do not delay.

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