As April rent has come due, rent relief requests have started to roll in. Restaurants have accounted for the majority of these early requests, according to Gary Glick of Cox, Castle & Nicholson. This is particularly noteworthy, considering that many retail owners have favored restaurant tenants in recent years as a response to the rise in online shopping
“To date, restaurants seem to make up most of the rent relief requests. However, we expect that any retail tenant that has been forced to cease operating by a governmental order to ask for some form of rent relief,” Glick, a partner at Cox, Castle & Nicholson, tells GlobeSt.com.
In April, less than have of all retailers nationally requested relief. Most of the retailers seeking relief are small, private owners, rather than national chains. “At the present time, anywhere from 20% to 40 % of retail tenants have been requesting rent relief from shopping center landlords,” says Glick. “Additionally, some tenants have not asked for rent relief but informed their landlords that they will be abating rent for the foreseeable future. With respect to national or significant regional retailers, most landlords believe that these tenants have the balance sheets to weather the COVID-19 crisis as well, if not better, than them.”
Largely, tenant options in the situation depend on the lease deal, and landlords will need to review leases individually to determine if rent abatement is an option. “Tenants can often make the claim that the force majeure provision of the lease permits them to stop paying rent,” says Glick. “However, many force majeure provisions expressly state that the payment of rent and operating expenses cannot be excused or extended by a force majeure event.”
Tenants seeking abatement would therefore need to cite another aspect of the lease. “Tenants would be required to look for other provisions of the lease providing them with abatement rights,” says Glick. “If none exist, tenants would still have the right to make claims based upon the legal principles of “frustration of purpose” or “impossibility.” It is hard to predict whether a tenant would prevail making these claims. However, it can be assumed that courts will be sympathetic to tenants that have been required to cease operating due to COVID-19.”
While tenants might have limited options for rent abatement, Glick recommends that landlords work with tenants to find a path forward, particularly in this environment. “With the exception of large national or regional retailers, it is advisable for shopping center landlords and tenants to work together over financial issues so that when the stay-at-home orders are lifted and businesses reopen, the number of retailers that have failed is significantly limited,” he says. At this point, most are heeding the warning.