Accent Capital supports the initiative of the Russian Shopping Mall Council on a draft law allowing tenants to unilaterally terminate lease agreements
The draft law, allowing tenants to break up lease agreements unilaterally and demand the return of the security payment, was sent to the State Duma on May 7, 2020.
The original version of the bill has caused a wave of indignation among commercial property owners - the Russian Union of Shopping Centers said that in this form the future law will lead to the collapse of the industry. The tenant companies, on the contrary, supported the bill.
During the discussion, RSTC sent a letter to the Chairman of the State Duma Committee on Budget and Taxes, Andrey Makarov, asking not to accept these amendments and to support the commercial real estate industry. The letter stated that at present, shopping centers are completely deprived of income. Commercial real estate is not included in the list of industries of the Russian economy affected by coronavirus.
According to estimates by the professional community, the average rent collection rate for April-May 2020 is 10-15% of the contract terms. Revenue recovery to last year's results may take from 9 to 15 months after opening according to a moderate scenario.
RCTC noted that the adoption of the bill will entail irreversible destruction of the industry without the possibility of recovery, as well as "revaluation of real estate, which threatens banks with 2 trillion rubles in default debt, 350 billion direct interest losses, and as a result, may lead to the collapse of the entire industry of shopping centers. The shopping malls themselves will become the property of banks and the state, which will not be able to restore their economic and social value in the medium term. Due to salary cuts and layoffs of employees involved in the shopping centre industry, 6.3 million people will fall below the poverty line in the event of a collapse.
Olesya Nikitenko, Head of the Retail Property Department at Accent Capital:
"We are concerned about Article 5 of the bill, which allows the tenant of real estate to unilaterally withdraw from the contract and without penalties in case of loss of more than 50% of revenue. Usually, the tenant of the property makes a security payment. In case of groundless early termination, the deposit remains with the landlord as a penalty or the tenant can notify the owner in advance (usually the terms of the contract stipulate this) and terminate the contract. For example, in the case of a small room, the tenant must give one to three months' notice to the owner. For anchor operators, who occupy large areas, the term may be up to one year. In such a situation parity is preserved - all parties are balanced, risks are minimized". (RBC. May 8, 2020. "Tenants want to be allowed to terminate the lease agreement unilaterally". Natalia Gustova)
Olesya Nikitenko Director, Retail Real Estate
Margarita Yermoshkina, Director of Legal Department at Accent Capital:
"The principle of equality of the parties is not observed - and civil law regulation is based on it". Margarita Yermoshkina reminds that the landlords have already lost 70-80% of their revenues, and they are not included in the list of affected industries and do not receive any federal support. At the same time, they still bear obligations to banks and other contractors. (Vedomosti newspaper, May 17, 2020. "Tenants will be able to demand a discount and break the contract without penalty. Anton Filatov)
Margarita Yermoshkina Director, Legal
On May 21, 2020 the State Duma approved in the second reading a bill on supporting the Russian economy and preventing the consequences of the coronavirus. The document allows to break rent agreements with owners of premises actually without penalties only to small and medium businesses, which are included in the list of industries affected by coronavirus. Owners of premises also can not return the security payment if it is provided by the agreement.
- income from SME rent - 25%
- share in the total turnover of tenant companies - up to 34%
according to the Russian Union of Trade Centers (RUSTC).
The position of the industry on this issue has not changed - relations between the lessee and the lessor are determined by a bilateral agreement based on the Civil Code of the Russian Federation. State intervention, according to the RCTC, will reduce confidence between the parties.
However, the version of the document approved by the State Duma RCTC considers the most correct, as agreements to reduce the rent will be temporary. This will allow for more confident planning of the economy of the shopping center in the medium term.
Head of Commercial Property Department at Accent Capital Olesya Nikitenko:
"Now the bill gives an opportunity to at least somehow predict and fix a part of losses to owners of premises. In its original version it would destabilize the commercial real estate industry for a long time". (Vedomosti newspaper, May 21, 2020 "Only small and medium businesses will be able to break up lease agreements". Anton Filatov)
Olesya Nikitenko Director, Retail Real Estate