Commercial property landlords are balking at requests for rent relief from big companies, saying they need to focus on helping vulnerable smaller tenants such as independent restaurants, clothing stores and barbershops that may not survive the huge losses from the coronavirus pandemic.
With non-essential retail outlets shut down across the country, and small businesses of all kinds seeing revenue vanish, many are saying they will simply not pay rent on April 1, and are asking for more prolonged waivers or deferrals.
The trouble for many commercial property owners is that several big companies are also asking for breaks, including Canadian Tire Corp. Ltd. and A&W Canada. Two sources told The Globe and Mail that Canadian Tire has asked for a six-month abatement on rent and operating costs starting May 1 for its non-Canadian Tire brands, which include the sports retailer Sport Chek and the clothing chain Mark’s.
The sources were granted anonymity because they were not authorized to speak publicly.
Canadian Tire said in an e-mailed statement to The Globe that it was "navigating through these unprecedented times. We are working with all of our strategic partners through this difficult time and we are confident we will reach a mutual agreement.”
But many commercial landlords object strongly to those sort of requests from large tenants. “When a company that is well capitalized that has a legal obligation to pay rent, doesn’t pay rent, I think it is bad behaviour,” said Michael Cooper, chief executive with Dream Office REIT, which owns 32 office properties, mostly in Toronto.
“They hurt landlords’ ability to be able to help people that need it the most. If companies have the money, they have the legal obligation," Mr. Cooper said. "If they don’t pay the rent, they are taking advantage of people in a very dire situation and that really is unseemly.”
Canadian Tire and other big names are able to flex their muscle because they are considered top tenants that can withstand economic downturns. Their tenancy often makes it easier for property owners to get lower mortgage rates and they can make a shopping centre more desirable because they draw more traffic to the property.
In return, landlords often ask for less rent and give into their demands, which they do not do with smaller businesses.
“That is the reality of playing in the playground with the biggest kid. The biggest kid is the most powerful,” said Steven Pearlstein, a lawyer with Minden Gross LLP, who specializes in commercial real estate. “That is human nature, the guy who has the most power dictates the terms.”
But the fallout from coronavirus pandemic has created immediate and widespread problems for landlords. If a tenant does not pay the rent, then the landlord will have a harder time paying his or her bills, including taxes, insurance and loan payments.
Those shortfalls, in turn, will hit lenders and government coffers. In some cases, insufficient funds will eat away at the returns of pension funds that own commercial properties.
Commercial property brokers and lawyers have been warning clients on both sides – tenants and landlords – not to take a hard line with one another by refusing to pay rent or threatening immediate eviction.
If a tenant refuses to pay the rent and is evicted right away, both sides could suffer once the economy recovers. The landlord will have empty space and the tenant will have a bad reputation and no means of making up lost revenue.
Ontario, British Columbia, Quebec, Nova Scotia and Alberta have temporarily halted evictions for some or all residential tenants hurt by the pandemic. However, similar moratoriums are not in place for commercial tenants except in New Brunswick.
Technically, if a tenant does not pay rent, the tenant has defaulted on its lease and the landlord has the right to lock the tenant out. But some tenants doubt courts will look favourably on an eviction during a global crisis.
That could be a risky assumption for those tenants, however. “If you are an opportunist, you will have a black name next to your tenancy,” said Stan Krawitz, vice-chairman with commercial real estate company Savills Canada.
Dream Office and other larger landlords such as mall owners, Oxford Properties and Ivanhoé Cambridge, have said they would defer rent for some of their struggling tenants. But other landlords are still telling their tenants they must pay the rent.
Many small retailers and restaurants say they simply don’t have enough money to pay the rent, and some are withholding their monthly payments or sending cheques they know will bounce.
“Quite frankly, we won’t be able to pay. I guess it will go to the bank and be withdrawn and then it will bounce," said Takaaki Masuda, whose family has four restaurants in B.C., including a successful high-end sushi restaurant in Vancouver called Kamei Royale. The family’s monthly rent of more than $150,000 was due on Wednesday.
The family has been trying to negotiate with four landlords and is getting wildly different answers from them, Mr. Masuda said. One property management company, acting on behalf of a group of investors from China and another owner, sent the family a letter simply saying it’s “business as usual” and that the rent is due.
But a local commercial landlord has offered to defer rent for a month and said he will reassess after that. Another has talked about wanting to get the just the base rent for now.
In Toronto, Chris Hammell, who operates two barbershops, has been keeping in touch regularly with one of his landlords, Carol Mair. She told him she expects rent on April 1 (the shops were open for half of March) but was willing to discuss a compromise if closings dragged on.
“If this thing goes longer, and there is no subsidy for rent, I don’t know how I’m going to survive,” Mr. Hammell said. “This rent goes to her being able to survive, too.”
Ms. Mair still isn’t sure what kind of relief she’ll be able to access as a landlord, but wants to be compassionate. “Whatever breaks I can get, I can then give breaks to my tenant,” she said.
Even with financial relief from the federal government’s 75-per-cent wage subsidy for small businesses, rent remains a substantial fixed cost for commercial tenants.
Ottawa has not introduced specific financial aid to help commercial property landlords. Banks are considering six-month mortgage deferrals for small businesses, including property owners, and some municipalities have postponed realty taxes for two months.
But many landlords and tenants have little idea what, or when, relief will arrive.
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