Landlords offering rental contracts to retailers
When the COVID-19 pandemic was at its peak, many business owners offered a deal to their tenants: pay us a portion of your monthly sales in rent instead of the normal amount in order to stay open.
But this seemingly temporary arrangement could become permanent, The Wall Street Journal reported Tuesday (June 15).
“More and more owners of shopping centers are signing new leases where the rent is directly linked to part of the sales, at least for a period”, according to the media. “These proportional rent leases are particularly attractive to new retailers, providing flexibility so that they don’t face significant losses early in their careers.
Many retailers were already feeling a pinch thanks to e-commerce and found themselves in even more trouble when the COVID lockdowns began. At the height of the pandemic, 73% of the country’s largest retailers had closed many of their stores. More than half of retailers have requested some form of rent relief.
When stores started to close, landlords found themselves with more space than they expected, leading them to offer generous terms – like percentage leases – to find new tenants.
It is the latest example of practices seen as temporary pandemic measures turning into elements of society, such as companies letting workers do their work from home, and a continued boom in food delivery despite restaurants reopening.
But that doesn’t mean fixed-rent leases are gone, the outlet noted. Most prorated rent agreements only apply for about the first year of the lease before reverting to a fixed rent model.
And these arrangements are not without problems.
Tracing a store’s sales to determine what rent they owe can be tricky, as tenants aren’t always keen to give their landlords access to sales data, except in cases where they need a break. on their rent due to declining activity.
“Tenants love it; owners hate it, ”Michael Rielly, managing director of Rielly Retail Solutions, a real estate advisory firm for retail and hospitality brands, told The Journal.