The pandemic has created new conditions in Greece's commercial property rental market after the mandatory shutdown of stores for several months. According to real estate market officials, many large retail groups are pushing for a change in the terms of their contracts, either directly, with the consent of the landlord, or during the next renewal of the lease. The goal is to reduce risk in order to be to deal with new, similar crises in the future.
Retailers such as the Inditex group (Zara, Berhska, Stradivarious, Oysho, Masimo Dutti etc.), H&M, Jumbo, the Fourlis group (Intersport, Athlete's Foot) and the companies of Sami Fais (Kalogirou, Puma, Under Armor , Adidas, etc.) are among the chains seeking greater flexibility in the leases signed in previous years to meet
new market conditions.
To date, several chains have signed contracts with a high fixed rent and in some cases, this was supplemented by a percentage of turnover paid to the property owner. That is, if the store achieves a minimum turnover amount (pre-agreed on an annual basis), then a percentage of it is paid to the owner.
In this context, commercial chain stores have already begun the effort to reduce or even eliminate the fixed rent charged. The aim is for the cost of using the property to be covered almost exclusively by the percentage of turnover. The above applies both for shopping malls and high-profile stores.
This is a strategy adopted by some retailers, such as Jumbo, during the financial crisis and especially during 2012-2013. At that time, there were even zero fixed rent contracts, with the total income for the landlord coming exclusively from a part of the turnover. Of course, this practice is not the norm, nor can it be applied to most of the retail sector as landlords are more likely to consent to this only in cases where the tenant is a chain store showing high turnover, such as a supermarket.
Given that consumption does not appear to be rebounding as desired and the possibility of a second wave of coronavirus cases seems more and more likely, shopkeepers are increasingly pushing for concessions from landlords.
One of them is to change some terms in their contracts. To date, several contracts have included terms for reductions, or non-payment of rents, in cases of force majeure. Such incidents included a natural disaster or a war. However, there had been no reference to a health crisis like today. This is a push for this to change and for the relevant term to added to the contract, something that owners are resisting as they believe that the issue of the pandemic will concern us for at least another year. This means that if such a term is accepted today, the owners will be exposed to significant revenue losses in the near future.
Property owners and retailers submitted a joint proposal to the government a few days ago, in order to facilitate the above discussions. Specifically, owners appear willing to make voluntary reductions in rents up to 40 percent by the end of 2020. In return, they are asking that the government extends the benefit of providing a tax deduction of up to 30 percent on lost rents.
That is, if an owner has a loss of income of 1,000 euros due to a reduction of rents by 40 percent, he will be compensated through a tax exemption of 300 euros (eg in ENFIA, or in rental income tax). This was applicable when it was mandatory for owners to reduce rents by 40 percent. The aim of owners and retailers is to extend this benefit in order to facilitate negotiations between the two sides and to avoid stores from going bust.