Saving A Retail Property Sector Under Lockdown: Goodwill and Mediation To The Rescue

A protracted lockdown for South Africa will inevitably lead to long-lasting economic repercussions for the retail sector. Already, non-essential businesses are feeling the sting of the lockdown from a lack of cash flow. As a result, both small businesses and large retailers are facing difficulty in paying their rent.

Unlike other countries, our country is not in a position to offer stimulus packages of trillions of dollars. In an effort to assist those suffering financially, particularly in the retail sector, the Property Industry Group is providing stimulus packages to retail tenants. However, part of the process requires retail tenants to negotiate terms and conditions regarding rent payments above the minimum ones stipulated in the stimulus package. How can mediation assist this negotiation process?

1. What is the Property Industry Group?

The Property Industry Group, formed in March as a response to responding to COVID-19 in the retail sector, comprises several representative bodies in the property sector: the South African Property Owners Association, South African Council of Shopping Centres and the South African Real Estate Investment Trust (SA Reit) Association.

2. Will all landlords offer this package?

Yes. The stimulus package will be rolled out nationally by landlords in the commercial property sector.

3. Why are they assisting retail tenants?

They recognise the devastating effect that the pandemic is wrecking upon South African’s economy and the unfortunate reality that many non-essential retailers have been unable to operate under lockdown. Ultimately, it is in both landlords’ and tenants’ interest that they work toward a feasible solution so that they may continue to function post-lockdown. Finally, the predictions that South Africa will see an increase in its unemployment rate is concerning; it is within the means of the Property Industry Group to promote job preservation through its stimulus packages being conditional upon the tenants not retrenching their employees.

4. What benefits is the Property Industry Group offering to retail tenants?

The stimulus package contains a minimum amount of relief for small and large retail tenants alike. However, the landlord may use its discretion to evaluate businesses on a case-by-case basis and offer additional assistance.

The packages’ focus is centered on providing relief to small, medium and micro enterprises, in the form of rent waivers (partial or full) and interest free rent deferments. Support is also extended to larger retailers impacted severely by the lockdown. Rental will include rent, parking rent and operating costs; but, will exclude insurance and utility costs.

Breakdown of the relief offered to different types of businesses: SMME Retailers (annual turnover of up to R80 million) Highly-impacted retailers e.g. companies selling time and services such as restaurants, hairdressers, travel agents, take-aways, etc. In April 2020: 35% to 100% of rental and further potential relief could be in the form of rental deferments. In May 2020: up to 50% of rental and further relief could be in the form of rental deferments. Interest-free deferment recovery period: Over six to nine months from 1 July 2020.

Medium-impacted retailers e.g. companies selling products that do not have a limited shelf-life, etc. In April 2020: 35% to 50% rental discount and further potential relief could be in the form of rental deferments. May 2020: Up to 25% rental discount and further relief could be in the form of rental deferments. Interest-free deferment recovery period: Over six to nine months from 1 July 2020.

Non-essential goods and services State-Owned Enterprises and Government Tenants No relief offered – 100% of rent payable Deferment recovery period: N/A

All retailers with annual turnovers above R80 million Includes local and international listed/publicly-traded retailers and large unlisted retailers. April 2020: 35% rental discount and 15% rental deferment. May 2020: 15% rental discount and 35% rental deferment. Deferment recovery period: Over six months from 1 July 2020.

Essential goods and services Retailers offering more than 75% essential services No relief offered – 100% of rent payable Deferment Recovery Period: N/A

Retailers offering essential services but electing to close No relief offered – 100% of rent payable Deferment Recovery Period: N/A

Retailers offering partial essential services, less than 75% Essential goods/services – 100% of rent payable. Non-essential goods/services – as per retailers with annual turnovers above R80 million. Pro-rated by essential goods/services turnover vs non-essential good/services turnover (or gross lettable area if specifically agreed) Deferment Recovery Period: For non-essential goods/services portion: over six months from 1 July 2020.

5. Do I qualify for these benefits?

The stimulus package is only available to those retail tenants who undertake not to retrench their employees. State-owned enterprises and government tenants do not qualify.

6. Can retail tenants simply refuse to pay their rent for the duration of the lockdown?

No. This will be acting contrary to the terms of the contract undertaken between tenant and landlord.

7. Will the government assist now that the lockdown has been extended?

The intervention on the part of the Property Industry Group will only address the financial consequences of the 21-day lockdown. As the lockdown has been extended, the government needs to plan for the relief for the retail sector.

8. How can retail tenants help to preserve jobs?

Retail tenants can follow the government’s suggestion to take a pay cut of ⅓ of their salaries if they are retail tenants. Some executives of larger retailers have already taken steps to cut their salaries for the lockdown period so that employees at their businesses can continue receiving their salaries for the lockdown period.'

9. How can mediation help?

The stimulus package merely contains the minimum assistance offered by the Property Industry Group. It is therefore left to the discretion of the landlords to determine whether they will provide additional relief to struggling tenants. Tenants are therefore encouraged to negotiate with their landlords directly should they require additional financial relief. The potential for default and disputes on a range of matters remains high.

Mediation is a form of resolving disputes without the hassle of entering into costly and time-consuming litigation. It will assist both landlord and tenant to enter the process in the spirit of good faith to negotiate fair rental payment terms and to preserve their relationship in the future.

10. How can Mediate Works assist?

Mediate Works has a diverse panel of highly experienced experts from enquiry chairpersons, investigators, facilitators, mediators, counselors and lawyers to assist. Ebrahim has sat as an adjudicator for CSOS for some time and has co-trained a number of the CSOS mediators through Conflict Dynamics.

Mediate Works can assist retail tenants and landlords to navigate themselves out of any disputes that may arise. We have adapted our processes to comply with the law, your disciplinary framework and the need to comply with the current lockdown regulations. We use secure and efficient online platforms to deliver.