Lockdown: Pepkor won’t pay retail landlords either

In a similar move to fellow clothing giant TFG.
The group has invited landlords to engage with its properties division on ‘possible alternatives’. Image: Nadine Hutton, Bloomberg

Pepkor, South Africa’s largest non-grocery retailer with around two million square metres of retail space countrywide, has also told shopping centre landlords it won’t be paying rent during the Covid-19 lockdown.

All of its stores across the country are closed for the 21-day period, which has seen most businesses – from clothing and DIY stores to restaurants and hotels – being forced to shut as part of the government-declared lockdown aimed at curbing the spread of the coronavirus.

Read: TFG insists it won’t pay April rent due to lockdown

Only essential consumer-facing services such as medical facilities, pharmacies, food stores, banks, security operations and fuel stations may operate during the lockdown.

Pepkor (including the JD Group) has around 5 400 stores in Africa, the bulk of which are located in South Africa. Its popular chains include Pep, Ackermans, Tekkie Town, HiFi Corp, Incredible Connection, Tiletoria and Bradlows.

Landlords informed

Moneyweb has a copy of a letter signed by Pepkor CEO Leon Lourens that was recently sent to landlords regarding the group’s decision not to pay rent for the lockdown period. A number confirmed receiving the letter, however it is unclear whether Pepkor sent the correspondence to all its landlords.

Moneyweb sent a list of questions to Pepkor this week, including a query on the veracity of the letter. Pepkor did not respond to any questions, barring a one-line remark.

“Our agreements and negotiations with our landlords are confidential and we prefer not to comment on this in the media,” the Cape Town-based group said.

Read: Equites scores deal to build R1.3bn mega-warehouse for Pepkor

In the letter, Pepkor raised concerns about the impact of the lockdown on business.

“As a nation we are entering a period of unprecedented uncertainty and challenges. Similarly, as businesses we are all facing extremely challenging times. As a group Pepkor employs over 56 000 people. The wellbeing and preservation of these 56 000 employees necessitate that tough decisions be made,” it said.

The group noted that due to the government-imposed lockdown, it would be unable to trade for “at least 21 days” and that trade thereafter “will most likely be very restricted”.

“We have taken the decision to suspend all rental payments for RSA premises due on respectively 1 and 7 April 2020. We are aware that this may have a major impact on our partners and are happy to engage,” the group added, citing the Covid-19 Block Exemption for the Retail Property Sector regulation 43134 published in the Government Gazette on March 24.

Pepkor said in the letter that it would continue paying for utilities in April as normal.

“A reconciliation of short payments due to the mandatory closure of stores will be performed for settlement in May 2020 based on length of time closed,” it noted.

‘Alternatives’

“We foresee trade to be severely restricted post lockdown until ‘normality’ prevails. We therefore need to put in place alternative rental measures,” it reiterated.

The group has invited landlords to engage with its Pepkor Properties division on “possible alternatives” to protect its viability during the national disaster and “to be in a position to remain a tenant post the disaster”.

Calling on its partners to “find solutions that will ensure the long-term viability” of both the retail and property industries, Lourens noted in the letter that Pepkor had taken “much consideration” in coming to the decision. He acknowledged that it would also have an impact on landlords.

Pepkor’s move comes as fellow non-food retailer TFG confirmed on Monday that it would not pay rentals in April. Moneyweb understands that several other major national retail groups as well as smaller players have also opted not to pay rentals amid an expected economic fallout from the Covid-19 lockdown.

Read: Retail landlords face rental troubles over Covid-19 lockdown

Concerns were raised by South African Property Owners Association (Sapoa) CEO Neil Gopal in a Moneyweb report on Monday related to the move by big retailers not to pay rentals. He warned that non-payment could cause the collapse of malls and severely impact retail property companies.

‘Unlawful’ says Sapoa

“We have seen correspondence from national retailers, stating that they will not be paying any rent (and even other lease charges) during the lockdown period. In our view, this position is completely incorrect, and unlawful,” he said.

“Every class of tenant [is] approaching landlords for rental remission, rental holidays and now also refusing to pay rental,” Gopal noted, adding that he believed national retailers were not interpreting the new Covid-19 block exemption regulations adequately.

Read: SA Reits wants tax relief from Covid-19 fallout

Worried landlords held an urgent industry conference call meeting late on Monday to discuss the issue as well as other challenges in the face of the Covid-19 impact on the sector. The meeting was jointly hosted the South African Real Estate Investment Trust (SA Reit) Association, Sapoa, and the South African Council of Shopping Centres.

A key message to come out of the meeting was that landlords believed rental relief needed to go to small retail businesses first, not major national retailers that have better access to liquidity and stronger balance sheets.

Gopal declined to comment further on the issue on Thursday, noting that negotiations were now underway between landlords and retailers.

Meanwhile, a similar move by major retailers like Adidas in Germany not to pay rentals due to coronavirus-related lockdowns has drawn the ire of the public.

This forced Adidas to make a U-turn on its decision not to pay.

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I wonder what TFG, PEPKOR and other retailers will do if we all stop paying our accounts due to the shutdown. This sword cuts both ways…and personally I think they are opening pandora’s box which will backfire horribly on themselves!!! Watch this space.

No. They have a good legal point. If they can’t trade they cannot pay rent. The shopping centre owner has a duty to let them trade. Why make the tenant’s carry the hot potato?

The shopping center owner is not preventing them from trading, government is. Why must the landlords carry the hot potato?

The landlords refuse to pay the banks, saying they are not getting rent. Why must the banks carry the hot potato?

The banks run into cashflow problems, say they cannot pay interest on investments or there is no cash when you want to withdraw …. do you want to carry the hot potato?

The landlord is not preventing them to trade. The government is.

Read a standard rental agreement and you will see how wrong you are!

Think a little further. Where does the potato end?

Huh? Blame the shopping centre!

@AP_- Not so simple.”Good legal point” maybe in instant Facebook law world. In reality very complex legal problem.

Agree HS (and others). This may also mean, if rent is not paid that centre management can order their security to keep the doors of the specific defaulting shops closed under ‘lock and chain’.

The interim solution is for REITS and Retailers to renegotiate terms under lockdown passes.

(I wonder if this move from PEP and prior that TFG, are not using this unprecedented Covid-19 event to fight the strong hand of landlords, while retailers now have a more powerful position standing together, they want to weaken the ever-strong negotiation position of landlords once lockdown passes. “…remember what we as retailers did to you landlords during lock-down? Now let’s negotiate”…)

One can’t also be unsympathetic towards mall owners….those REITS are your & my retirement fund performance to a large extent. But so are shares in retailers. Best to renegotiate and find middle ground.

I was lucky in that my landlord gave my business a payment break for this month. I understand Pepkor’s concern. If this lock down carries on much longer, most retailers will shut down permanently with massive job losses we have not seen before! Everyone is gonna lose this way. Remember it is not Pepkor’s choice not to trade, it is a government decision so it’s out of their hands. If this ends up in court maybe a judge will rule that it was tacit force majeure.

One must remember that landlords only have a limited amount of funds (reserves) to help tenants.
If large tenants/ corporates don’t pay rent then the landlord needs to use all their reserve monetary resources to cover the losses of rental from these large companies, making it almost impossible for the landlord to help the small companies/ tenants that really do need help.

Essentially these large companies are making the issue much worse for the smaller companies.

As an example- Nando’s has made billions of Rands profit in South Africa over the years (and who most likely have large cash reserves), now are refusing to pay their rental as they have one bad month!
When the landlord does not receive rental from Nando’s the landlord has less reserves to help the smaller tenant who really does need assistance.

Essentially these large companies, who are sitting on cash, are choking the economy by not allowing money to flow through the economy. It is like a waterfall and the corporates are switching off the tap at the top not allowing the water (money) to flow downstream (through the economic system).

These large companies have a social responsibility and a legal responsibility to fulfill and I fear that if they continue to hoard their money they will lead to the economic situation getting to a point that it is not fixable.

I wonder what TFG, PEPKOR and other retailers will do if we all stop paying our accounts due to the shutdown. This sword cuts both ways…and personally I think they are opening pandora’s box which will backfire horribly on themselves!!! Watch this space.

Agree with your caution to the BIG retailers. Their stance, if true, is very arrogant and shortsighted. Not sure who they think they are to decide to ignore their contracts. EVERYONE has been impacted and all businesses too.
Surely they have the sense and maturity to meet their debtors to talk about mitigation measures.
I feel any business that so blatantly puts itself above its stakeholders in this way needs to be boycotted by the public.

No. The leadership should have come from the owner or landlord in offering immediate relief, even partially.
By not doing so the Mall owners are saying the tenant will carry the can.
They can’t and they shouldn’t.

So ‘Africa Pragmatist’ feels as the renter / tenant I should expect my landlord to approach me to offer relief if I have a problem!? No, the real world does not work like that. It sounds like you should maybe change your handle to ‘Africa Idealist’…

It’s about beneficial occupation. Common law. If you cannot benefit you don’t pay rent. That obviously does not apply to residential as you are staying in your rented residence and benefiting.

They should at least pay 25% of their rent.

I pay fokol this month, I have not been too…

After all of this lock down episode everybody is going to be hit hard, all off us. Some more than others. The hitting will stop at the banks and they must just absorb it. There is no other way. Unfortunately.
It is what it is.

Unless it causes the banks to have enough defaults and cause a credit crisis. Then it stops with us, South Africans, as it should and always has.

…. No the hit will get taken by us the tax payer again… Banks will all need to get bailed out.

If this 21 day lock down don’t stop the spread of The Virus, nothing will. Extending the lock down will not work, it will just drive every business and us all to bankruptcy.

Spaza shops are allowed to open and some taxis may operate.Lets see what happens.

Don’t be silly. Every nation has extended their lockdown periods for good reasons-saving lives.

No let’s be honest 21 days is not enough…. U really
Need around a 3 month lock down to snuff this thing out real good….. Think of a veld fire…. U can’t put it out 95 %…… It comes back with a vengeance.
3 month lock down and our economy is broke beyond repair…… We already hanging on the edge with aour fingertips thanks to the ancs Darwisim policy’s……. This equation has not happy answer. Most of us are still walking around like this is just a little minor inconvenience that will soon sort itself out – and we should all be good for our annual Mozambique December holiday…. U ous need to Get this now… This is the biggest thing to shake down the world since 9/11…. The repucations are gonna be felt for years after….. Alot of things are gonna be very different after this.

as a landlord, I will never rely on pepkor as an anchor tenant. this action shows their arrogance, and their refusal to share the losses, but demand that the consumers pay.
this will harm pepkor!

I wonder who set the arrogant policy at pepkor……none other than the million pound suitcase.

Haha. Sharp

Landlords in South Africa got used to fat and greedy margins. We all need to share the pain. Pepkor should at least share the cost of rates and levies. And landlords should compromise and only charge for their costs during this period.

Everybody should win, even in a losing situation.

Oh dear landlord,

take you plight to your creditor.

and please leave the taxpayer alone.

Hi Suren

A follow up on my previous comment on your last article on this matter. This is a big company attitude toward not paying rent because they were not allowed to trade due to lockdown.

Of course a company the size of Pepkor will get away with this legally due to their army of lawyers, but what about the small business. The life blood of our economy.

Pepkor depends on them surviving so they and their staff can continue to shop at Pepkor. If our govt does not apply a uniform approach to this issue by #StoppingTheClock on all time based payments and charges during the lockdown.

Our economy is in for a very long and damaged recovery. I don’t believe Pepkor is wrong in their approach, but I am worried about the small businesses, not being able to get away with this.

I also empathize with the landlord. They own the property and so should equally not have to pay interest on their debt during the lockdown.

Yes the bank can not be left on it’s own at the end of the line. That is why the Reserve Bank will have to inject liquidity and cover the cost of this lost repo rate to the bank. We are all in this together during the lockdown.

This virus is all our problem and that is why the only solution is for the govt to pick up the net cost of the 21day lockdown to be equally shared by all South Africans and recovered by government through the extra tax it enjoys from a quicker and better recovery after dealing with COVID-19Tracker.

Helping our small businesses survive has never been more important. This should be decided swiftly and communicated via banks with a clear message to landlords, if they challenge not receiving their rent from their tenants legally they won’t qualify for the interest concession.

The very same should apply with property rates and taxes. I.e all time based costs should stop for the 21 days.

This is the most accurate, swift and least corruption inducing strategy that will be understood and respected by economic participants.

If people are living in their homes they equally should not pay interest / rent as they cannot generate income to pay for their refuge.

All South Africans should have one priority during these 21 days and that Is to feed their families and #StayTFHome2KillCorona19.

All South Africans are going to dip into their savings in the next few months if they have any. By this #StopTheClock approach small business will have the best chances of living to fight another day.

The grant system should then be beefed up to ensure that those less fortunate are able to play their part during the lock down with free Masks and Gloves and Hand sanitizers at grant stations across the country.

To qualify for the interest rent concession you would need to prove that you paid your staff during the lock down.

Something Simple like this Suren rather than a complicated grant process with application forms and a 3 month wait because Of all the checks and balances needed to minimize corruption and fraud in the process.

Well done on your articles because it gets back to basics at this important time and the importance of finding the fairest and most equitable solution with two clear objectives namely:

1.to keep all South Africans in non-essentials fed and at home with their immediate families only for these 21 days to stop the virus in its tracks and

2.While not as important as 1, to make sure that as many people in our economy have their jobs to go back to once our great president is able to declare victory over this threatening adversary.

My prayers for you, your family, South Africa our land and all it’s beautiful people during this very stressful time in all our lives.

Who exactly will pay for all this? Government? Sorry but there is no money and Tito won’t like I’M terms.

Looks like the retail landlords are being cut down to size.

What’s good for the goose is good for the gander. So obviously the smaller retailers that survive in malls also wont need to pay rent.

About time the landlords gave someting back instead of being self-centred takers.

At least some of the better malls aren’t charging for parking at the moment.

Easy.

Kick them out with immediate effect. If they don’t empty the shop in the street.

Lets turn over a new leave.

Is it possible…these landlords requested these retailers to publicly declare they can’t pay rent…to save their ailing property businesses through government bailouts?

The property sector was doing bad.

A bit risky to take such a gamble… What if everyone decides then not to pay?

Perhaps the real problem we face is that there is too much debt in the market?

The banks all convince borrowers to borrow at the highest gearing rate possible.

Pepkor has plenty of debt as do the landlord. I wonder how much debt the SME tenants have as a percentage. They generally pay double in R/square meter compared to the anchor tenants too.

We all need to take a haircut (including the banks) and it needs to be a fair one.

And it all flows through to the banks whom are the see through victims. Trust me. Landlords will also inform banks of non-payment. Govt. needs to inject liquidity into the banks. Capital adequacy ratios to fall heavily. In 1 year, we will know if we did the right thing. Hunger will be the new corona.

I encourage all consumers that have amounts due to Pepkor and been put on unpaid leave to withhold and never pay their April monthly amount.

I get that there are real hardship cases. A family-owned clothing store or furniture maker or clothing factory has a case to ask landlords for a repayment plan to spread April over the rest of the year. Ask, negotiate, agree on assistance. A landlord that is unwilling or unable to spread April is a fool or runs a bad business.

BUT Massive corporates that see their way clear to pay their non exec chairmen 3,000,000 a year for a few meetings and their CEO 1,500,000 per month had better remember that people will have long memories when it comes to their unilateral flat-out refusal to pay. Will they recover so spectacularly that they can pay bonuses despite pleading hardship with suppliers??? Has the board undertaken to cancel dividends for FY20?

Consumers will (unfortunately) still buy roughly the same amount of low quality cheap imports that Pepkor is renowned for.

This is a disgrace to say the least!! Opportunistic bullies! So lets just stop paying school fees, taxes, our outstanding accounts etc…and the fact that stellar board members allow this? Shame on you!!

NO Ross,

if there ever were “opportunistic” greed most will agree large landlord’s dealings are at fail by far.

Tenants being “opportunistic” rarely happens as rare as a virus stopping the world economy.

This is anarchy. What happens if we all stop paying our accounts for example, electricity, levies, etc. The next item is salaries, wages etc. It will not take much for people to widen the non- payment gap. Do the right thing negotiate with your creditors. Set the example. If Fosvhini persists with their stance of not arranging some sort of payment to the retailers concerned I for one will not pay my account.

I really hope this will come back to bite TFG and Pepkor. I will certainly NEVER support them again after this unilateral decision. They obviously have no backbone when the going gets tough. I still paid all my bills or negotiated where I had to. But I did not just stop paying. I will make sure my kids get to associate their brands with the “bad Coronavirus” for the rest of their lives.

I am not sure what most of the respondents do not understand about the Lease contracts between Landlords and Tenants. If the Landlord is unable to provide the Tenant with a shop that is open for trade, then no rent is payable – unless there is a specific Force Majeure Clause in the contract, which is not likely the case.This is unfortunately a problem for the Landlords – perhaps they should be blaming their lawyers for not covering them for this situation. It is, quite honestly, irrelevant whether the tenant is a large or small retailer – none of them are liable for rent if the Landlord is not able to offer what they promise in the Lease Contract. I agree that it is not the Landlord’s doing either, but they should have covered themselves for this – unfortunately they haven’t and now must seek assistance from Government/Banks, not from their Tenants.

Let’s see if the retailers are able to go back to their shops if it is under lock and key if they do not pay their contractual arrears. The reality is that both need each other – it is a symbiotic relationship. The problem is that the retailers have now unilaterally acted like bullies, yet they are dependent on the guys they are bullying for their lunch.

Problem is that the Landlords are trying to dictate everything on their terms – no negotiation or discussions. In fact, 2 of my Landlords have not even bothered to respond to our request – it is and always has been one sided.

Force majeure – or vis major – meaning “superior force”, also known as cas fortuit or casus fortuitus “chance occurrence, unavoidable accident”, is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, plague, or an event described by the legal term act of God, prevents one or both parties from fulfilling their obligations under the contract.

Wikipedia

Force Majeure is quite common on lease agreements particularly for shopping centres.

Pity those whose retirement savings were invested in REITS. They have been hard hit.

Not sure why you say Force Majeure would likely not be in these type of contracts…. pretty standard actually.

It’s the same if the mall burns down. Do you expect the tenants to pay rent still ?
I get the feeling that the objections here are due to investments in the property sector, so are biased.
In the big picture, the mall owners should ride the storm for a month or two. Or what ? Do they think they can survive 2 Edcons? Not a chance

Who owns PEPKOR? One Christo Wiese used to control with a 44% shareholding but he sold out to Steinhoff. Brait followed suit, so PEPKOR is owned by Steinhoff, mainly.

Am I right in my assumption?

If so, the action taken does not surprise me, so typical of the Steinhoff ethos. Perhaps PEPKOR is going the way of EDCON.

One must remember that landlords only have a limited amount of funds (reserves) to help tenants.
If large tenants/ corporates don’t pay rent then the landlord needs to use all their reserve monetary resources to cover the losses of rental from these large companies, making it almost impossible for the landlord to help the small companies/ tenants that really do need help.

Essentially these large companies are making the issue much worse for the smaller companies.

As an example- Nando’s has made billions of Rands profit in South Africa over the years (and who most likely have large cash reserves), now are refusing to pay their rental as they have one bad month!
When the landlord does not receive rental from Nando’s the landlord has less reserves to help the smaller tenant who really does need assistance.

Essentially these large companies, who are sitting on cash, are choking the economy by not allowing money to flow through the economy. It is like a waterfall and the corporates are switching off the tap at the top not allowing the water (money) to flow downstream (through the economic system).

These large companies have a social responsibility and a legal responsibility to fulfil and I fear that if they continue to hoard their money they will lead to the economic situation getting to a point that it is not fixable.

Even Constantia Uitsig has been Pepkored. Sies!

We are very small fry property owners but have offered to charge our commercial tenants, who are closed, for only one week in April, ie 25%, plus municipal charges. This has, so far, been well received. Rentals for residential properties were all invoiced on 25/03/120, as usual, which was prior to the lockdown, so we fully expect to enter some negotiation for next month which may be costly. Some may try to take advantage of the situation but adopting a hard ass attitude by either party will only benefit the attorneys. Time will tell !

The large corporates are saying that everyone must feel the economic pain and hence not paying rent.
But how many of the senior management of South African corporates are taking massive salary cuts to feel the pain themselves?

In America this is happening. If we are to all feel the pain, senior execs must feel it to.

NJ.com: CEOs in the retail industry who are taking pay cuts during coronavirus crisis.

https://www.nj.com/business/2020/04/ceos-in-the-retail-industry-who-are-taking-pay-cuts-during-coronavirus-crisis.html

End of comments.

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