Mall owners reluctant to drop rents, enter into revenue-sharing pacts

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Published: June 9, 2020 5:40 AM

Few are willing to drop rentals, though some mall owners have eased the load for retailers by allowing them to stretch payments over a longer period.

Others have waived the rent for the period of the lockdown but are unwilling to get into revenue-sharing agreements.Others have waived the rent for the period of the lockdown but are unwilling to get into revenue-sharing agreements.

Unrelenting landlords may force many more retailers to shut shop just as has happened with Full Circle bookshop and Cafe Turtle in New Delhi’s tony Khan Market. Few are willing to drop rentals, though some mall owners have eased the load for retailers by allowing them to stretch payments over a longer period. Others have waived the rent for the period of the lockdown but are unwilling to get into revenue-sharing agreements.

Retailers have been hoping to invoke force majeure clauses that would exempt them from paying rentals during the lockdown period but some legal experts have opined the clause may not apply there is no “permanent damage to the store or goods in the store nor is there any permanent restriction of physical access to the store.”

Sanjiv Mehra, president, Khan Market Traders’ Association said the lease agreements of some stores had expired and new agreements could not be worked out. “We have said landlords should grant tenants whatever discount they can afford. Owners too have financial commitments,” Mehra said.

Najeeb Kunil, CEO at Pioneer Property Zone Services that manages malls across the country including the Vega City Mall in Bengaluru and The Marina Mall in Chennai said the company was not waiving rents for the lockdown period and “there is no question of a revenue sharing model when bankers are sitting on the other side.”

Instead, the firm has worked out a moratorium like in the banking sector—retailers can make smaller payments each month but must clear their dues by March, 2021. “We have projected sales for three quarters based on the last three years’ sales. Although the first couple of months are expected to be slow, business should be close to pre-Covid levels once the festive season commences,” Kunil told FE.

Kunil said even if the firm makes 60%-70% of the business it made last year, it would suffice as the company can dip into its reserves from the previous year to sustain.

Muhammad Ali, COO, retail division at Prestige Group that operates nine malls across the country said although the firm was among the first to offer total rental waiver for the period of lockdown, no decision has been reached on agreeing to a revenue sharing model. “Retailers are going by the presumption that there will be a compression in consumption. We believe this is a premature and pessimistic outlook,” Ali said. Rather, mall operators and retailers need to work towards improving customer sentiment and only after a thorough evaluation should commercial arrangements be reached.

Manoj K. Agarwal, CEO at Mumbai-based Viviana Mall said rents would be negotiated closer to the date of reopening of malls in Maharashtra, adding the individual agreements and track record would be the basis for negotiations. “We need a partnership-based approach where both the parties can be reasonable and factor in the other’s concerns and financial conditions. Developers too have fixed and variable costs,” Agarwal said.

According to analysts at ICICI Securities, although retailers have cited force majeure clauses which would exempt them from paying rentals during the lockdown period, interactions with legal experts indicate the clause may not apply in this case as there is no “permanent damage to the store or goods in the store nor is there any permanent restriction of physical access to the store.”

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