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Mall owners may resolve rental issue with retailers through dialogue

Malls have been closed across the country for the last two months due to countrywide lockdown resulting in loss of business to retailers and loss of rental income to mall owners. The situation has given rise to debate as to who will bear the loss of rental income. However, an amicable solution seemed to have been arrived at, though the solution varies from mall to mall.

Solution is entirely based on the relationship between the retailers and mall owners which is usually a cordial one. So, some of the mall owners like Prestige Estates and Lodha Group have reportedly decided to forgo the rent during lockdown period. Some owners like Brigade, on the other hand, have given 50% waiver of the rent during lockdown period. Meanwhile, mall owners like Phoenix Mills, DLF, Nexus Malls and Virtuous Retail have not yet taken any decision in this regard and reportedly waiting for the malls to reopen. However, it’s expected that matter would be settled through dialogue as individual tenant relationships with each mall operator matter significantly in the retail sector.

However, there is a general consensus among the legal experts that the Force Majeure clause cannot be invoked in this case. According to legal experts, Force Majeure clause may not apply in this case as there is no permanent damage to the store or goods in the store nor is there any permanent restriction of physical access to the store. Further, as most operational malls run on Lease Rental Discounting (LRD) loans from banks which are self-liquidating in nature, non-receipt of rent payments would lead to default on principal and interest payments on the LRD loans. LRDs typically carry a repayment tenure of 8-12 years and currently most mall operators have opted for the temporary moratorium period of 3 months on payment of principal and/or interest on these LRD loans.

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