Should retailers skip rent?
Urban Outfitters, Dick’s Sporting Goods and The Cheesecake Factory are among several companies that have gone public with their intentions to temporarily stop paying rent due to store closures largely forced by shelter-at-home policies.
In some cases, the tenants are citing a clause in most lease contracts called force majeure, which allows either party to limit their liability in the face of some unforeseeable, extraordinary event.
Speaking to Adweek, Joseph Malfitano, restructuring advisor at Malfitano Partners, said he does not believe such clauses relieve a tenant of their lease obligations, but instead sees the moves being used as leverage. He said most retailers are seeking rent relief for one to two months, with a few seeking three months.
Dick’s, which announced the temporary closure of all locations on March 17, is reportedly offering different compromises to landlords based on whether the store’s closure was mandated by stay-at-home orders or was the retailer’s call. Mattress Firm is seeking a rent reduction in exchange for longer leases.
“The court system is just going to get flooded with a million of these disputes between tenants and landlords,” Vince Tibone, an analyst at Green Street Advisors, told Bloomberg. “If the government doesn’t step in in any form or fashion, it could get ugly. They need to respond quickly.”
Taubman in a March 25 letter told tenants they must pay their rent because landlords have to “pay its lenders, utility companies, insurance companies and the like, to ensure the safety and security of the building and maintain the appropriate level of operations.”
A Taubman spokesperson told CNBC the tenant memo “does not replace our willingness to talk to each tenant about their respective challenges and help them chart an appropriate course for the future.”
Adidas backtracked on its decision to stop paying rent after criticism from the German government. Moves to stop paying rent may be seen as necessary for less financially-sound tenants, but it’s still adversarial.
- U.S. Retailers Plan to Stop Paying Rent to Offset Virus – Bloomberg
- With Rent Due, Leases Don’t Give – Adweek
- US mall owner Taubman is telling tenants they must pay rent amid coronavirus – CNBC
- Coronavirus in the US: How all 50 states are responding – and why eight still refuse to issue stay-at-home orders – USA Today
DISCUSSION QUESTIONS: Are threats to stop paying rent amid the COVID-19 pandemic an excessive risk for retailers? Are relations between retailers and landlords naturally more antagonistic than those with vendors and other business partners?