When one cannot pay his bills, what does one do? Does one simply stop paying? Try that most places and one will end up in court. But according to Business Insider, there is a new trend of lessees in the form of major corporations simply refusing to pay rent for retail space due to the virus-related situation.
Retail companies across the US are grappling with a global pandemic that’s forcing them to keep their stores closed, drying up business, and putting their futures at risk.
The US is weeks into the lockdown with no clear end in sight and some retailers, who are growing increasingly concerned about depleting cash reserves as sales drop off but expensive store rents remain, are shifting the financial burden elsewhere by refusing to pay their landlords.
Refusing to pay rent puts landlords, who have their own mortgage payments and loans to worry about, also at risk of failure, and greater pressure on the companies that finance them – the banks, hedge funds, and pension funds – which is likely to have wider economic ramifications, experts say.
In the US, a small group of retailers are so far reported to have refused to pay rent. Among these are the national chains – Staples, The Cheesecake Factory, and Mattress Firm. In Europe, H&M, Primark, and Adidas (though it went back on its decision) have done the same.
But industry experts and insiders painted a gloomier picture of the breadth of this crisis, which could see considerably more retailers refusing to cough up on their rent in the next few months.
Maloney said the general consensus amongst landlords is there is no reason why they should abate the rent or why the responsibility should entirely fall on them. “It is not our fault that this is happening,” he said.
“Deferral is our preferred avenue,” he added. We think it’s fair. When things come back and they start doing well, they will have the money to pay us back.” (source)
Now in fairness to the companies, they do have a point. All major restaurants run on very, very tight margins, even profitable ones. If one factors this in, a month, two, three, or more loss is a major blow to their bottom line. Naturally, it would be in the renter’s interest to negate or lower their rent payments, and a lot of landlord are frankly selfish or just cash-strapped too on borrowed money, so they can’t afford to lower it.
The problem here which this exposes is the interconnected nature of the debt web that is enmeshed over society. The web works well when all people can pay, but like the derivatives market, it falls apart when payments become seriously jeopardized, leading to a crisis of who-pays-what that takes years to clear up in a court. Overall it is long-term disastrous in pursuit of short-term profit because it links debt with profit in a dangerous “race to the bottom”.
It is true that the restaurants and real estate owners need to work together, but this is more than about them. This is about how the two are tied together by ropes of borrowed money, and as one trips, the other also will inevitably fall.