Retail Landlords Using Pandemic Clauses for Protection

Retail tenants and landlords can’t control the pandemic, but some property managers are starting to include contract clauses to offer both parties some protection.

NEW YORK – Some new retail leases include pandemic protection for landlords and tenants alike – a way retail landlords can prepare in case there’s another economic shutdown during the pandemic. They’re structuring leases to help tenants survive the impact to their business.

Some clauses in retail leases now outline ways that tenants can lower their expenses while landlords can continue to collect some rent money. For example, a property manager of more than 45 open-air retail properties in Washington, D.C., says he’s offered to allow payments of the minimum base rent at 50% if the city prohibits tenants from operating their business again due to the coronavirus outbreak. The tenant must repay the difference in six equal monthly installments starting on the first day after reopening.

Philippe Lanier, the principal at EastBanc, told The Wall Street Journal that he’s also open to structuring leases on a percentage of the retailer’s sales to help tenants if they see their sales decline.

“You have to provide the tenant an easy decision,” Philippe said. “If you make it complicated, you’re not going to get this done.”

These added pandemic-related clauses are aimed at helping retailers feel more comfortable moving forward on a lease and providing some added protection to the landlord if shutdowns occur again.

“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,” Josh Goldstein, director of real estate and store development at Pet Supplies Plus, said. “Force majeure” clauses allow tenants to terminate leases or reduce rents in the case of “act of God” circumstances.

But some landlords are being careful not to specify “pandemic” as a force majeure event in their clauses. “Having such language in a lease hurts owners’ ability to get financing for the property,” the Wall Street Journal reports. “Instead, [landlords] have offered sweeteners, including bigger allowances for new and existing tenants to improve their spaces.”

Source: “Retail Landlords Offer Pandemic Clauses in New Leases,” The Wall Street Journal (Aug. 25, 2020) [Log-in required.]

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