As malls continue to stay shut, retailers turn to the government for support for rent waivers, GST concessions and more

• With malls being shut, hundreds of retailers across the country not only have their businesses disrupted but also continue to pay rent for their spaces in malls.
• According to a report by Retailers Association of India, non-food and non-grocery retailers are seeing a 80-100% reduction in sales.
• The RAI predicts that if they don’t receive support from the government, there will be 20% job cuts across the industry.

Due to the coronavirus lockdown, life has come to a standstill in India. Malls, theatres and pubs have been shut even before the lockdown was in place in March to practice social distancing.

But as malls remain shut for weeks, hundreds of retailers across the country not only have their businesses disrupted but continue to pay rent. According to a report by Retailers Association of India, non-food and non-grocery retailers are seeing a 80-100% reduction in sales since the lockdown.

Need of rent waivers

As malls wear a ghost town look, retailers are urging owners for rent waivers. A report by credit ratings agency CARE said that the big retailers in the country issued force majeure notices to malls and real estate owners for waiver of rental expenses while also discussing reduction in rents.

However, force majeure notices won’t work, says Nikhilesh Barik, a lawyer in one of India’s top corporate firms.

“Most developers/ landlords have taken a stand that tenants are not entitled to invoke force majeure because their premises have been kept operational by running data servers which are ensuring that the tenant’s workforce is able to ‘work from home’. Loan repayment obligations of the developers/ landlords have been highlighted as crucial,” said Barik.

He added that the courts in India have held that a tenant may only be able to terminate their rental agreements, on account of a force majeure event, if material part of the premises is destroyed or rendered substantially and permanently unfit for the purpose for which it was let out.

“The lockdown may be viewed as temporary in nature, not resulting in destruction of the property or rendering it permanently unfit. Therefore, tenants may not be able take benefit of force majeure clauses in their contracts. However, tenants may approach their landlords on a goodwill basis for abatement of rent. This has irked many to relook their rental contracts,” said Barik.

And this has turned out to be a big ask of retailers from the government. A survey done by RAI states that 2 out 3 retailers employing substantial workforce want employee salary and rent support to manage their fixed costs and limit downsizing. The survey adds that if this support is not given they are looking at over 20% manpower reduction.

The revival period will be long

Even after the lockdown lifts, it’s not going to be easy for retailers to get back in business. People will be wary of stepping out of their homes and malls will continue to see fewer footfalls.

CARE Ratings has given the Indian retail industry a negative rating and said, “Impact on demand is expected to remain muted at least for the next three or four quarters, and will be more in case of players with presence in non-essential items and luxury segments.”

During a recent webinar, Ashwin Puri, director, Lake Shore India Advisory, said that the revival period for malls in India would be at least 6-12 months.

In light of this, retailers are also asking for concessions in taxes. “Two out of five retailers want concessions and relief in this area to ensure business continuity in the face of the revenue downfalls and heavy losses for FY’21. Government and financial institutions have to come together and provide a meaningful package for the Industry to survive the impact of COVID-19,” said the survey by RAI.

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