For US retailers, coronavirus concerns come home. What are their options?
Counterparts in Singapore and Hong Kong have mobilized to demand rent relief; some temporary rebates have been granted
“Community spread” of the coronavirus in the U.S. has led to a growing fear among retailers. Already grappling with supply-chain uncertainty due to the spreading epidemic, retailers are now contending with the prospect of a decline in sales as consumers opt to avoid public spaces.
While American cities have yet to witness the empty-street scenes that have appeared in places like Seoul or Milan, the way retailers in other markets have responded to the crisis can shed some light on options available for their U.S. counterparts.
On Thursday, a group of more than 300 Singaporean retailers called for their landlords to provide 50-percent rent cuts for three months, the South China Morning Post reported.
“We are learning from what the tenants in Hong Kong did,” a member of Singapore Tenants United for Fairness told the Post.
And last month, 50 retailers operating nearly 200 shops in Hong Kong went on strike to demand rent cuts. Retailers there had already been struggling from the months-long anti-government protests before the emergence of the new coronavirus — called COVID-19.
The Restaurant Association of Singapore also called for landlords to provide steep rent cuts last month, as some restaurateurs predicted 80-percent losses in revenue.
Several major landlords, including real estate giant CapitaLand, have pledged cuts, while the Singapore government has offered landlords a 15-percent property tax rebate.
Retail tenants at Singapore’s main airport — who have been particularly hard-hit by a decline in air travel — have been granted a 50-percent rent rebate for six months. Airports in Hong Kong, South Korea and Thailand have taken similar steps.
Singapore’s response to the epidemic has proven a hard-to-replicate success story. The island city-state has seen 117 confirmed cases of coronavirus infection and zero deaths.
The latest tally for the U.S. stands at 163 cases and 11 deaths as of Thursday, including more than 50 cases in California and more than 20 in New York.
Demands for rent relief would be nothing new in the U.S., as retailers large and small have struggled for years to meet their rent obligations amid the retail apocalypse.
But beyond voluntary arrangements with landlords to cut rents or reduce hours, commercial tenants may have few options.
“In general, unless the tenancy agreement provides otherwise, there is prima facie no duty on the landlord to offer any concessions,” Singapore-based lawyers with international law firm Withers LLC wrote in a report last month.
U.S. contract law, which shares English common law roots with the legal systems of Hong Kong and Singapore, does not have a general definition for “force majeure” events or “acts of god.” Contracts are interpreted narrowly on a case-by-case basis. If a lease contract doesn’t explicitly include provisions for an epidemic, a tenant might be out of luck.
Another extreme option is to rely on the “doctrine of frustration”, where “a virtually cataclysmic, wholly unforeseeable event” makes a contract worthless, the Withers report notes. “However, it must be noted that this is a matter to be determined by the courts, which will look at the specific set of facts of each case.”
Because of their rarity, there are few successful precedents when it comes to epidemic-related lease disputes.
One frequently-cited case took place during the SARS epidemic in Hong Kong in 2003, but it wasn’t a retailer. A residential renter attempted to vacate his lease, after a government isolation order made his apartment uninhabitable for 10 days. A court rejected the argument, saying the disruption only lasted for a short time.