Retailers say they will pay rent only in proportion to actual business in case of lockdowns

Top retailers and restaurant chains such as Reliance Retail, Madura Fashion & Lifestyle, Domino’s, Plum by Bent Chair, Mamagoto, Farzi Cafe, Lee, Wrangler and Cafe Warehouse among others, are insisting on introducing clauses in all new leases that stipulate that they will not pay rent, or pay only in proportion to their actual business, in the event of government mandated closures of stores and malls.

“In all new leases, we have mentioned that in future as long and as many times as lockdown is imposed, we won’t pay any rent. Pre-pandemic too, we had force majeure clauses in some lease agreements but these were few and limited to 90 days,” said Priyank Sukhija, promoter of First Fiddle F&B, which operates Lord of the Drinks, Plum by Bent Chair and Tamasha. The new clause is a consequence of Covid-19 and is currently becoming a norm in rent pacts. In cases where landlords or mall operators don’t agree, retailers are not renewingtheir leases and are leaving the properties. While some mall owners are accepting the new terms, in some cases it is resulting in acrimony as well.

“In all the new leases we are signing, this (clause on lockdowns) is definitely a condition we are putting forth,” said Kabir Suri, joint managing director of Azure Hospitality that operates Mamagoto and Foxtrot restaurant chains. He said his company has vacated properties where support or adjustments based on lockdowns and closures following government directives were not provided by landlords. “We are also discussing the same with new landlords,” said Nitin Chhabra, chief executive of Ace Turtle, the India master franchisee of US denim brands of Lee and Wrangler.

“All new leases will have a pandemic clause,” said Zorawar Kalra, managing director of Massive Restaurants and promoter of Made in Punjab, Farzi Cafe, Masala Bar, and Bo-Tai.

Retailers say they will pay rent only in proportion to actual business in case of lockdowns

A senior executive at Jubilant FoodWorks that operates Domino’s Pizza, Dunkin Donuts and other chains said the company is currently negotiating for dozens of properties in various cities and they are negotiating to pay “proportionate” rentals of actual sales during the months of governmentimposed lockdowns. He said many smaller landlords are wary about agreeing to such clauses. An email sent to Jubilant FoodWorks did not elicit a response.

Executives with direct knowledge said the country’s largest retailer Reliance Retail is planning to incorporate such clauses in new lease agreements. Reliance Retail and Aditya Birla-owned Madura Fashion & Lifestyle, did not respond to ET queries. “Most of the earlier leases did not specify closures happening due to government orders. Now this clause is being inserted by tenants,” said Shriram Monga, principal consultant at SRED Advisory, a New Delhibased retail real estate consultancy.

“They insist that clauses such as government orders are included in lease documents along with words such as pandemic and epidemic,” Monga said.

Amid last year’s nationwide lockdown and this year’s local lockdowns, retailers and restaurants have taken a massive hit, facing closure of outlets, huge losses and retrenchments.