Retailers and landlords seek ‘common ground’ as negotiations threaten to turn ugly

The chief executive of one of Australia’s largest retail landlords says it’s been hard to find common ground with some major retailers over rental payments as the two sectors butt heads amid coronavirus-induced store shutdowns.

Vicinity chief executive Grant Kelley told The Age and The Sydney Morning Herald while the $4.7 billion proprietor had come to a number of amicable agreements with some larger retail clients, negotiations with some parties had stalled.

“We agree with the sentiments expressed by the government that it’s only fair that landlords and tenants have a shared responsibility to tackle the challenges brought about by these unprecedented times,” he said.

“When likeminded retail partners approach the current situation on that basis the conversations are very meaningful. When a retailer has traded or voluntarily closed and refuses to pay any rent or honour any part of the lease – it’s hard to find common ground.”

Since the coronavirus pandemic’s outbreak in mid-March, tensions have been high between tenants and landlords, with operators such as Solomon Lew’s Premier Investments declaring it would not pay rent during the shutdown of its stores, which has now stretched into its fifth week.

Numerous other retailers followed suit, and preliminary negotiations have been underway over recent weeks as both sectors attempt to broker a way forward through the coronavirus crisis.

However, there are fears parties will be unable to come to mutually beneficial agreements and that discussions could soon turn ugly and end up before the courts.

One major Australian retailer, who spoke anonymously in fear of jeopardising the sensitive discussions, said the future health of Australia’s retail sector was reliant on landlords being reasonable in their discussions.

The retailer has bookmarked hundreds of stores for potential closure if rental relief is not provided, joining numerous other merchants who have threatened to shut stores without hesitation if necessary.

“Rentals in Australia are out of control, they need to be re-written and this is going to force that if the landlords like it or not,” they said.

Discussions are set to come to loggerheads over what payments will be made – if any – for stores shut during the lockdown, and how existing leases will be modified to reflect the predicted months of lower sales following stores reopening.

The retailer pointed to a recent case where Vicinity threatened to take action against tenants who shut shops to protect staff from the coronavirus, saying it was an early indication of the stance landlords were likely to take in negotiations.

The inevitable outcome of this debacle is a slew of court cases, according to Harvey Norman founder Gerry Harvey, who acts as both tenant and landlord across his 190 stores nationally.

Mr Harvey paid rents through April but has since been in discussions with landlords over future rent relief to varying levels of success. However, he predicts the hardline stances taken by retailers could see others’ negotiations “blow up” and land before a judge.

“Some retailers are taking a very strong view on it, as are some landlords,” he said. “And there are hard-headed people on both sides who will want to fight it to the death.”

“I have no doubt some of them are going to end up in the courts, it was always going to be a very contentious area.”

Some retailers have threatened if negotiations get to that point, they’ll place the business into administration instead, which would allow them to wipe onerous leases clean and restructure the business. Listed retailer PAS Group entered a trading halt on Thursday to assess “potential restructure options”.

Former Myer boss Bernie Brookes told The Age and The Sydney Morning Herald administration would be a likely outcome for any shopkeepers stuck in unfavourable long-term leases.

“A lot of retailers are going to use it to reposition their business, but the landlords are going to be very, very strong on saying no,” he said.

“It’s going to be a stalemate where both sides have shareholders and there’s gonna be some really tough discussions in the next few months.”