Time to Plan a Recovery

A lease and its implications is a powerful tool in difficult economic times. However, the majority of current leases, particularly a shopping centre lease, will exclude the opportunity for tenants to not withhold rental and outgoings payments. In other words, Landlords in the majority will be entitled to collect. There will be some exceptions where leases specifically reference the inability of tenants to access their premises. 

However, there will be many retailers and tenants currently in lockdown who will be stressed by their positions and a resolution to their predicament will be required post haste. Conversely, a number of Landlords will be concerned at potential tenant failure and their ability to pay mortgages. 

Without doubt, the potential for business failure is paramount, consequently affected parties will need to pull together to survive this current crisis.

Of concern will be the shopping centre industry and in particular centres that have only opened in the past few months. The traditional opening of new shopping centres enjoy a honeymoon period which sees high levels of sales as customers enjoy the new experience. Gradually that level of excitement dissipates and the trading levels of stores reduce to a moderate level. Thereafter sales become normal and fluctuate according to the seasons. 

The recent lockdown by Government gave retailers and all business activities just 48 hours to prepare to close. As a result, food outlets would have had to dispense with food that could not be retained, and fashion retailers just had to lockup and will be left with seasonal unsold stock, and probably new winter stock either in warehouses or on the water arriving from overseas. All retailers will be affected, given the closure for four weeks or more, with the realisation of wages and overheads to pay.

 The impact therefore on new shopping centres in particular is apparent, where tenants will have to start again to entice reluctant and potentially unemployed consumers to their new premises. Unsold stock lying in closed stores and unsold new stock in storage and arriving will place huge financial pressures on retailers. The recovery will be very painful. 

It is time therefore for current leases to be shelved and for landlords and tenants to get together in an attempt to salvage a joint recovery.  This is not just an action for Retail Landlords but for all landlords. Closure of some business will be inevitable, but where recovery can be achieved by tenants and landlords in a pre-determined effort to survive, then they should do so. Having a tenant close does not produce rental for a landlord and retaining tenants over the next few months will be vital for New Zealand’s financial recovery.