Will the tenants of shopping malls rebound?
Shops in galleries are up and running again, but many of them may have serious problems. Courts do not understand their situation and landlords are not always willing to negotiate.
The pandemic is not very favorable to shopping centers and their tenants. First, the government banned them from operating in the spring. They had to face the same problem again in the fall. The second lockdown ran from November 7th to November 28th. Now many shops in the galleries can operate again, but some of them have already got into serious trouble.
For many tenants of shopping centers, the near future may be the only chance to make up for at least some of the losses that have hit them as a result of the double lockdown. We are entering the pre-holiday season, which can attract many customers to the stores. The future of trading, however, is highly uncertain. Much depends on what the epidemic situation will look like in the near future. There is also a fear that certain trends among consumers have changed permanently and they will visit shopping malls less frequently. Another major problem is that there are still no food zones in shopping centers. Long purchases and stays in such places will therefore be limited.
Moreover, during the second lockdown, many new and difficult legal issues arose which gave rise to disputes and resulted in divergent practice. This applies, for example, to the use of solutions from the Anti-Crisis Shield 2.0 implemented in spring, which provided for the exemption of tenants from the shopping center from the obligation to pay rent for the closing period, provided that an agreement with the centers was reached and contracts were extended for this period. At the time of the second closure, some landlords had waived their banned rent by accepting these regulations. Others, on the other hand, demanded payment on normal terms.
On the verge of solvency
All this is combined with the key problem of financial liquidity of tenants, who during the pandemic were deprived of a significant part of their revenues. If they could not count on significant concessions from the owner of the gallery, they now run their shops on fumes and face the risk of insolvency.
In addition, the burden on public law in trade is growing. The introduction of the retail sales tax may cause additional perturbations and reduce the chances of regaining financial liquidity for many companies, even after opening shopping malls.
And due to the pandemic restrictions, the decline in the turnover of shopping center tenants is likely to be long-term. After the last lockdown, it is true that customers went to the gallery. However, the situation has not yet returned to pre-COVID-19 normal. Consequently, disputes between tenants and landlords have become commonplace. However, legal proceedings are costly and not always efficient. In addition, not all landlords are willing to negotiate.
Extraordinary change of relationship
As far as court proceedings are concerned, the instrument that has the greatest chance of success in this case and is the most frequently used are the so-called clausula rebus sic stantibus (Article 357 (1) of the Civil Code), i.e. an extraordinary change in relations. As part of it, you can even try to establish a security by, for example, lowering the rent. As a result, the court may fix a temporary reduction for the duration of the trial. In this way, it is possible to obtain not only a reduction in burdens, but also a court order prohibiting the use of collateral – a bank guarantee or execution on the basis of a notarial deed.
Unfortunately, the first judgments also appeared, indicating that obtaining such security may be difficult. Courts are unfavorable and incomprehensible about the situation of tenants. They don’t want to take responsibility. And this despite the fact that the epidemic is a typical and classic case of an unusual change in relations that could not have been foreseen.
Restructuring or bankruptcy
The coming months should show what the situation of tenants will look like. If they do not regain an appropriate level of income, with high operating costs and the relentless attitude of landlords, they will be at risk of losing financial liquidity.
Then larger entities will be able to use the instruments provided for in the restructuring law, including the simplified restructuring procedure. An attractive solution may also be the possibility of withdrawing from certain contracts as part of remedial proceedings. It is also possible that some entities, in particular from the catering industry, based on food courts in shopping malls, will be forced to file for bankruptcy.