Retailers tell landlords they could stop paying rent soon

Commercial property owners still have to make mortgage payments

Mar.March 20, 2020 02:00 PM
(Credit: iStock)

(Credit: iStock)

Restaurants and other retailers that have seen business screech to a halt because of coronavirus shutdowns are warning their landlords that they may soon stop sending rent checks.

Sandwich chain Subway sent a “force majeure” letter to landlords earlier this week saying that it may cut off rent payments if franchisees have to curtail business as government entities order them to shut down or significantly pull back services.

“In the event this pandemic compels the Subway restaurant owner to narrow the scope of its operation (e.g., take-out or drive-thru service only) or to close entirely,” the letter read, Subway reserves its right to “abatement or postponement of rental payments.” Subway did not respond to a request for comment.

Several landlords told The Real Deal they’ve received similar letters from tenants.

Retailers are seeking relief after the city plunges into a virtual shutdown.

The government’s heavy-handed actions began Sunday, when Mayor Bill de Blasio ordered the city’s tens of thousands of restaurants and bars to limit their services to delivery and takeout, effective Tuesday morning — a deadline the governor quickly changed to Monday night. Gov. Andrew Cuomo on Wednesday began curtailing the percentage of employees who can show up for work, ultimately ordering all non-essential workers to stay home, effective Sunday.

Retailers such as Apple and Nike had already decided to close stores until later this month.

The near shutdown of the city puts landlords in a tough spot as they still have to make mortgage payments. However, the state’s top judge over the weekend ordered an indefinite suspension of evictions, including of commercial tenants.

On Thursday, Cuomo announced a 90-day suspension of mortgage payments for homeowners who can prove hardship caused by Covid-19, but the order does not apply to commercial landlords.

“Landlords are sort of in the middle,” said Rosenberg & Estis attorney Eric Orenstein, who explained that owners’ agreements with their lenders sometimes limit the flexibility they can give to struggling tenants. “They want to help their tenants who want to pay the rent, but they also have an obligation to pay their lenders.”

Contact Rich Bockmann at [email protected] or 908-415-5229

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