Retail landlords are including pandemic language in new leases, a previously rare feature as tenants seek protection after the first government-mandated coronavirus shutdowns in March complicated their negotiations for rent relief, the Wall Street Journal reported. Because many insurance policies didn’t cover pandemic-related losses, landlords have offered various concessions to attract and retain tenants, including allowing them to defer part of their rent if another shutdown is ordered. Both sides get breathing room: Tenants are able to lower expenses while landlords are still able to collect some money for overhead and their mortgage. “You have to provide the tenant an easy decision. If you make it complicated, you’re not going to get this done,” said Philippe Lanier, principal at EastBanc, a property developer, owner and manager of 25 open-air retail properties in Washington, D.C.’s Georgetown neighborhood. Lanier has offered to cut the minimum base rent to 50 percent if the District of Columbia prohibits tenants from operating their business again because of the coronavirus, and for the tenant to repay the difference in six equal monthly installments on the first day after reopening. He also is open to leases structured on a percentage of the retailer’s sales—“percentage rents”—which would limit tenants’ expenses if their sales decline. He said he had signed amended leases with around 30 retail tenants, with an additional 15 still in the works. Real-estate brokers said that landlords have to contend with a glut of stores and social-distancing measures that have forced many retailers to shrink the number of stores. The trend puts more bargaining power in the hands of tenants such as restaurants, apparel retailers, grocery stores and discount stores that are still expanding. “We have begun to clarify and strengthen some of our force majeure language to more clearly define governmental shutdown, et cetera, which could happen for a multitude of reasons,” said Josh Goldstein, director of real estate and store development at Pet Supplies Plus, referring to “act of God” clauses that allow tenants to terminate leases or reduce rents in extraordinary circumstances. Questions remain about how long Covid-19 will persist, and some businesses are wary about the recent resurgence in infections in California, Texas and Florida. Landlords have extended more relief to tenants such as small local and regional apparel retailers, salons and restaurants that have felt the most pain. They also said they anticipate more tenant bankruptcies.
