The big five clothing retailers have issued a take-it-or-leave-it offer to pay 20% rent for April plus utility bills, a headache for shopping mall owners as companies across the country scramble for cash to withstand the Covid-19 outbreak.
The clothing retailers — TFG, Pepkor, Truworths, Woolworths and Mr Price — said special government regulations, gazetted last month as part of measures to contain the economic fallout of the lockdown, allowing a tenant to breach a contract to protect its viability means they can legally pay no rent.
But after negotiations with major landlords under the Property Industry Group, a newly formed industry body group made up of three property associations, “in a spirit of compromise” the retailers have offered 20% for April plus rates and water bills, retailers said in a letter to seen by Business Day.
In the letter, dated April 12, retailers told the landlord to take the offer or nothing.
“We note that this is our final position, failing which we will revert to our definitive legal advice that rentals are not payable during this period,” the letter reads.
The dispute is the latest example of how companies cut off from their customers due to the stay-at-home order, which was due to end this week but has since been extended to the end of April, are scrambling to preserve cash to withstand the downturn. For property companies, which have been struggling to push through rental increases even in a weak economy, it is a further blow to their finances.
The Property Industry Group, which pulled together representatives from SA real estate trust association (SA Reit), the SA property owners association (Sapoa) and the SA Council of Shopping Centres (Sasc) is still in discussions about the 20% offer, said Estienne De Klerk, chair of SA Reit Association.
The landlords have spent the past two weeks working on a relief package, which offers deferred rentals that can be repaid over six to nine months interest-free from July 2020, as well rental reductions on the condition companies did not retrench staff. It amounted to about a 50% rental reduction, according to Stanlib property fund manager Keillen Ndlovu. This package was valued at more than R2bn.
On March 24, trade & industry minister Ebrahim Patel gazetted exemptions that relax restrictions on joint rent negotiations that would usually be considered anticompetitive and unlawful. The regulations include a clause that allows tenants to take “reasonable measures” to protect their viability during the lockdown, even if in breach of contract, which retailers say makes withholding rent legal. Landlords disagree.
The legal battle is one of many playing out between businesses and debtors as the lockdown leads to liquidity challenges, unpaid bills and could lead to a million job losses, according to Business Unity SA speaking on Tuesday.
In the letter, retailers complain that their request for turnover-based rent after the lockdown, which would be lower, was also declined. They predict weak consumer demand for the medium-term. The retailers, however, acknowledge landlords are facing immediate cash shortages. Shopping centre landlords still have debt repayments, security company costs and utility bills as they remain open so that grocery stores and pharmacies can trade.
But retailers say they cannot carry the cost of the lockdown “without landlords sharing the burden”. The retailers’ letter states that they employ hundreds of thousands of people and the clothing manufacturing sector is “haemorrhaging” jobs as demand decreases.
“Hundreds of thousands of South Africans earn a living from their employment by the retailers, and millions, directly and indirectly, live off this income through their employment in the supply chain of the retailers,” the letter said.
In the letter, the retailers predicted excess mall space, that partial lockdowns may well continue for the foreseeable future, and that “SA, in all likelihood, enters a full-scale depression”.
The commercial property sector is thought to employ 300,000 people.
Retailers explain that the economic damage from the lockdown is irreversible. “Retailers have suffered and will continue to suffer permanent loss,” the letter said.
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