Retail Tenants Are Pre-Negotiating Forced Closures in New Retail Leases

In an article published by on June 6, 2022, Russell A. Arouh was quoted extensively discussing the rising trend of retail tenants seeking contract provisions to protect them in the event of future scenarios where outside forces require them to shut their doors, as COVID-19 did in 2020.

“Retail tenants are asking for some form of pre-negotiated rent abatement or rent deferral in the event of a forced government shut down of retail operations,” Russ said.

The challenge, of course, is that landlords are hesitant to forego any amount of their rent income. “Landlords never want to be in a situation where the rent can drop completely based on something that is out of their control,” he said, adding that landlords are typically unwilling to engage in a discussion about rent abatement. However, many landlords are willing to use the pandemic-era workouts for tenants. “What I am seeing is some landlords are willing to memorialize as a future agreement that they previously granted to that same tenant during the pandemic,” Russ said.

These agreements call for specific definitions of “forced government closure” as different businesses may have different thresholds of functionality depending on the circumstances, and Russell says landlords are largely suggesting the term means “you are not allowed to open.” Retailers would rarely argue that point, but in rare cases, some retailers have tried to argue that CDC recommendations not to open would be an equivalent. “You have to look at a forced government closure as being the state or the federal government telling you that you can’t operate,” Russ corrected.

For the full article, please click here.

Related Industries