Retail chain refuses to pay rent in stand-off with retail landlords

https://www.smh.com.au/business/companies/solomon-lew-pulls-out-big-guns-in-stand-off-with-retail-landlords-20200326-p54e7t.html

"Billionaire retailer Solomon Lew has taken the law into his own hands in his fight with large retail landlords. He is refusing to pay rent on the 1250 retail stores owned by his Premier Investments for at least a month, as it shutters all shops from Thursday.

"Lew is neither waiting for the government to close down all non-essential retail nor holding his breath for landlords to offer rent concessions but pursuing a scorched earth approach instead, with 9000 staff to be stood down.

"Premier’s move could prompt an avalanche, if other large retailers, which for the past couple of weeks kept their doors open despite the near-absence of shoppers, follow suit.

"Large shopping centre landlords could be faced with a conga line of retail chains following Lew’s lead."

 

It also brings retail landlords to the table to possibly find some middle ground, rather than retail landlords trying to set a really small discount.
When its all over there will be many small businesses that simply go under or never reopen so there will be no shortage of space in many big shopping complexes.

 

Prob a smart move on his behalf.

 

What about his lease? Not sure if it's legal to just stop paying rent

 

At a guess, I'd speculate (without any specific experience) that Westfield (and possibly other centre owners such as Vicinity and Stockland perhaps) might have many many decades experience in dealing with retailers that have unilaterally decided not to pay the rent by the due date, for whatever reason.

One would hope that he doesn't get locked out of all his stores, the stock and fittings sent to auction to settle any outstanding debts, and causing the 9000 staff (mentioned in the above post) to be unfortunately let go, which is awful in this current environment.

Doesn't sound like an ideal ending.

 

Big expensive shopping centres seem like a relic of the 2000's.. Bulldoze them all and build on their place housing accommodation and neighborhood centres (cafes, restaurants, and the like -- ok not right now! 2 years time maybe). Instead expensive retail space are replaced with distribution warehouses far outside expensive land zones. These become the new hearts of ecommerce. All customers buy online, customers don't have to battle crowds, and you should never have to worry about a virus wiping out your business ever again....

 

But this would be really bad publicity for the Shopping centres....

 

I'm not sure I agree with you, but if I did what do you think would be the outcome?

People wouldn't go to shopping centres, or would they just buy their (arguably) cheap jeans, sleepwear, clothes and/or stationary somewhere else?

 

I think general retail is on a decline in any case.
I'd buy online.
I'm also someone who hasn't really spent much on new clothes from any Australian shopping centre any time recently. Haven't bought stationary either.

 

I had been chatting with another retail tenant rep earlier today on how his clients were getting on with the current climate.

Some (well publicised) companies are closing their doors, others are battling on. Leases don't cover these issues and tenants are required to trade. Either they will go broke as they cannot lay off staff unless there is a government directive that they're unable to trade eg beauticians or they'll go into voluntary administration.

Shopping centre owners aren't budging at present - they require board approval to deviate from their leases (budgeted income projections). This will give rise to ASX announcements and the share price will cop a hammering I do hear that they aren't locking out tenants (not worth having a locked up shopping centre).

Until the gummint make a directive, rent concessions will be few and far between.

On the flipside, Woolworths have announced some unilateral rent concessions for it's tenants (heard it but I don't have a link).

 

I find it an absolutely disgusting move to be honest.

When Premier is making hundreds of millions of dollars, does it share the profits with landlord? Nope. So now it's making $0, and it wants to share the costs with the landlord. If that's how we want to play it, I want to enter into leases where I get 50% of the net profits or 15% of revenue.

In the same way, when times are good, landlords don't share capital gains with banks. So when times are tough, the bank forecloses you.

 

Its a breach of contract. Landlords will have trouble enforcing now and he knows it and will exploit it to his advantage

When I said 'smart' I didn't mean in the moral sense!

 

If Lew owns any investment properties, does he now let his tenants live rent free?

 

It's covered in another thread I think but most of his leases are now month to month with the last couple expiring this year. He won't be the only one, my contacts in the industry say retailers are in contact with each other and are all planning to band together on this.. they have been getting milked for yrs

 

Retail leases include a turnover clause. If their sales exceed a threshold, the lessor gets a fixed % on top of the base rental and outgoings.

This mitigates the lessor's risk of undercooking the rent for a tenant or provides a mechanism to collect rent where the product is untested in a new market and does wildly successfully.

Each investor weighs up their own situation.

 

Exactly, lessors aren't exactly being knocked over in the rush to lease shops. So will be faced with escalating vacancies or minimal rent.

This will also trigger other clauses with the majors who require a % of the centres to be trading or they too will pay no rent.

Lessor's are waiting to determine what incentives see on offer from the gummint before prejudicing their position.

 

Speaking with a food outlet in a food court in Sydney CBD

Building is owned by a Singapore company, refuse to allow rental reductions and if said if you close the shop for trading they can sue for breach of contract.

Yuck

 

HWL have written a number of articles on contracts and the current climate. Might be of interest

Also covers new rights for tenants in NSW

Vincent Licciardi posted on LinkedIn

 

Anecdotal. Had a quick chat at 2m with the chap at the local coffee shop. He is trying to do the right thing as his income has dropped over 75% but it's his only source of income. Two of his regulars are a Federal Senator and a Federal member. Different parties. Both asked him how he was going and he mentioned the landlord being reluctant to negotiate the rent with him and other shops. Both these politicians said they will have quiet word with the centre management.

Interesting behind the scenes issues I guess.