Struggling retailers in the U.S. stop paying rent


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Retailers have been hit hard by coronavirus related closures in the United States. With most stores closed and unemployment skyrocketing, sales are down sharply and many retailers can’t afford to pay the rent.
CGTN’s Karina Huber reports.

The Gap, which also owns Old Navy and Banana Republic, has nearly 2,800 stores in North America.

But the coronavirus has caused them all to shut temporarily. Eighty-thousand employees have been furloughed.

The company, which is struggling financially, stopped paying rent as of April, saving it $155 million.

Gap is just one of many commercial entities struggling amid the coronavirus outbreak and have stopped paying their rent. Others include Staples, Subway and Mattress Firm.

A record number of Americans are now out of a job and shopping has come to a screeching halt.

Retail sales were down 8.7 percent in March – the biggest decline on record.

Some retailers are arguing the pandemic constitutes an event outside their control that prevents them from fulfilling contracts, triggering so-called “force majeure” clauses.

“So, just because there’s a force majeure clause present in the contract, doesn’t mean it’s an escape hatch for the tenant. It might give them some relief in certain instances, and in other instances, not at all,” said Andrew Maguire, Partner at McCausland Keen + Buckman.

Maguire expects heavy debate in courts over whether the pandemic constitutes a force majeure.

Glenn Spiegel, a lawyer at Becker in New York City says some are under the false assumption they don’t have to pay their rent.

“All of the rent will become due at some point and they’ll end up in litigation. While the litigation will take a long time to resolve, because there will be an influx when the courts open, it still will happen,” he said.

Many landlords have mortgages and need the rental income to service their debt. Spiegel says landlords are generally willing to make concessions to keep their tenants.

“By the same token, the property owners, the landlords are going to look to the government and say look we’re deferring all of this rent, but our taxes are due, our mortgages are due. What kind of relief can you give us?” said Spiegel.

What’s abundantly clear is the retail crisis is having a domino effect, one that some worry could lead to a wider financial crisis.