Rent reduction and suspension of rent because of the corona virus: up-date

On 30 March 2020 we blogged that associations of retailers and real estate owners had come to a temporary solution for the financial consequences of the corona virus. Their consultation continued and also the Dutch Association of Banks and the Ministry of Economic Affairs are involved. Dutch Banks indicated that they are willing to grant (amongst others) retail investors and retailers with a finance up to € 2.5 million a half year postponement of their repayment obligations. The Ministry of Economic Affairs hopes that other real estate investors will follow this example, in order to offer landlords financial breathing space.

Subsequent arrangement branch associations

The continued consultation has led to a subsequent arrangement on 10 April 2020. In summary, the branch associations make a plea towards their support base for the following:

• Suspend the rent of retailers as of April 2020 for a period of three months (this was previously until 20 April 2020);
• The suspension should be at least 50% of the rent and where needed 75 or 100% (this has to be tailored and depends on various circumstances, such as bearing strength, owner structure of the retailer (which may have ownership abroad) and possible online turnover);
• This arrangement only applies if the turnover loss of the retailer is a direct consequence of the corona crisis and is at least a turnover loss of 25% as of 1 April 2020. When assessing the turnover loss, only the ‘offline’ turnover is relevant. It has been emphasized that the retailer has to prove its turnover loss;
• Remission of the rent (rent discount) can only be discussed in three months, when the impact is clear (and hopefully better times have arrived).

N.B. This arrangement is not binding. Tenants and landlords still need to enter into consultation with each other. The slogan “Only together we can control the corona virus” also applies to landlords and tenants. The consultation of the branch associations also included that retailers shouldn’t unilaterally enforce a payment arrangement or rent discount to their landlords. This did happen in the past period by (large) chains such as ICI Paris XL. Other chains, such as Wibra, decided to pay half of the rent as a ‘gesture of good will’.

Once again: remain in consultation with each other

A tenant should consider that unilaterally enforced arrangements or rent discounts can cause damage to the organization’s image. Adidas announced earlier that it would not pay any rent over April 2020. Considering the substantial damage to their image (lack of solidarity) this caused, they reconsidered later. And the unilateral enforcing of a 100% discount (not paying the rent over April 2020) is costing AS Watson (the Chinese parent company of amongst others ICI Paris XL and Kruidvat) dearly. AS Watson decided to close its 155 ICI Paris XL shops because of the corona virus, without any consultation with its landlords. After that, it argued that it would not pay the rent, arguing that there is a defect under the lease agreement as a justification. One of its landlords, Tres Invest (who also had various costs that had to be paid), took offence by this action and applied for AS Watson’s bankruptcy. Applications for bankruptcy are currently still being handled, even though part of the judicial organization is closed. When a creditor applies for the bankruptcy of a debtor in the Netherlands, it must (i) submit its own claim(s) and (ii) make plausible that the debtor is in default of performing at least one other claim of another creditor. Only then the court is able to asses that the debtor has stopped to pay his due and demandable debts. Because of the application of bankruptcy, Tres Invest and AS Watson went into consultation with each other after all and (reportedly) AS Watson paid the April rent for its ICI Paris XL shops partially after all. The application for bankruptcy has clearly borne fruits. In an interview with Real Estate Journal, the owner of Tres Invest, Pieter van Loon, said: “This is apparently the only working method, so I have to press ahead and give off a sign. It’s basically like a relationship, communication is everything.” Tres Invest is currently applying as well for bankruptcy of Perry Sport, who also sent a letter with the notification that it pays no rent temporarily. Perry Sport chooses voluntarily to close its shops in this period. Sport2000 is still open and is located straight across Perry Sport in Dordrecht. Perry Sport therefore chooses to close the shop and cannot just decide that it stops paying rent, Van Loon says. In short, the points of attention in our previous blog still apply. And communication is indeed everything. The subsequent arrangement of the branch organizations can help to reach a reasonable solution for this highly unusual situation. If you want to know more about this or need help, Anton van den Heuvel and Nydia de Winter of Ploum’s Construction & Real Estate Team are gladly willing to assist.