The State Duma approved the conditions for the eviction of foreign firms from shopping centers

Russian shopping centers will have the right to unilaterally terminate lease agreements with retailers and catering from unfriendly countries until the end of 2022. Such amendments were approved by the State Duma.

The State Duma approved new rules for calculating rents with companies from the fields of trade and catering immediately in the second and third, final, readings, RBC correspondent reports. The initiatives were formalized in the form of amendments to the second reading of the bill aimed at legalizing the issue of multi-vote shares by international companies, which was adopted in the first reading on June 14.

What is the point of change

The new rules for landlords will be in effect until the end of 2022 and will apply to their relations with tenants if the latter meet three conditions:

www. they are directly or indirectly associated with unfriendly states; the rental rate is set as a share of the income received as a result of the use of the leased property, or in any other form, depending on the results of the economic activity of the tenant. In other words, tenants pay not a fixed amount, but a percentage of the turnover; tenants suspended or stopped using the leased property for business activities, resulting in a strong decrease in rent (by more than 50% compared to the same period last year).

If these criteria are met, the tenant will have the following rights:

demand payment of rent in the amount of the average monthly payment in 2021 or in the period from January to February 24, 2022 (the date of the start of hostilities in Ukraine), if the lease agreement was concluded in 2022; unilaterally terminate the lease agreement. But for this, at least one of the additional conditions must be met: the tenant did not resume the use of the rental property ten days after receiving the relevant notice, or refused to pay the average rate for 2021.

Shopping center owners asked to support Russian retailers Business

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The rules protect businesses that remain in RUSSIA. The document lists cases where a unilateral refusal to execute a lease agreement by the lessor cannot be applied, namely:

if the tenant lost the control of foreign persons after February 24 and after that came under the control of Russian legal entities or individuals;

if the tenant lost control of foreign persons in favor of Russian ones after February 24, and in addition, changed the trademark or company name.

In March, Deputy HEAD of the Ministry of Industry and Trade Viktor Yevtukhov sent a letter to the owners of shopping centers in which he “strongly recommended” to set a fixed rate for all tenants who suspended work. At the end of May, the head of the government, Mikhail Mishustin, pointed out the need for a new regulation of rental relations.

Shopping center owners will be allowed to evict companies that stopped trading Politics

“Some foreign companies, suspending work for political reasons, are in no hurry to vacate the premises. Therefore, we are going to give owners the right to early terminate lease agreements with companies associated with unfriendly states, ”the prime minister said at a meeting of the presidium of the government commission on improving the stability of the economy under sanctions.

How will the bill affect the market?

New rules for terminating contracts may become an additional tool for landlords in negotiations with tenants, says Dmitry Moskalenko, president of the Russian Council of Shopping Centers (RSTC; unites owners and managers of retail real estate). Many landlords need the leverage provided by the law to be able to terminate contracts, since now this can often be done only through the courts, says Marina Malakhatko, DIRECTOR of the retail department of the consulting company CORE.XP.

According to RSTC, international brands that have stopped work account for about 20% of the space in shopping centers in Russia. Moskalenko notes that the revenue of shopping center owners has also decreased by about 20% over the past four months. At the end of the year, shopping centers may receive less than 30% of revenue, it was estimated earlier in СORE.XP.

Shopping center owners asked to support Russian retailers Business

The new law is unlikely to lead to mass closures of international brand stores, Moskalenko said. “We do not live in one day. Both tenants and landlords are big business. We hope that all this will end successfully and we will be able to carry on with our activities. The option proposed by law is the most stringent, it will be applied when the parties definitely do not plan to cooperate,” he explains. So far, few people want to terminate the contracts, because “the owners have hope that the brands will continue to work in one form or another,” confirms Malakhatko. In addition, it is not so easy to find a replacement for departed brands, she adds. Most tenants and landlords will make decisions about further work in September-October, Malakhatko predicts.

According to market participants, international companies continue to pay rent, some of them have individual agreements on the amount of payments. According to Moskalenko, retailers who have suspended work pay rent at 10-90% discounts, depending on agreements with the owners of the shopping center, its popularity, etc. CORE.XP says that the average discount is 30-50%. Earlier in an interview with RBC, Crocus Group First Vice President Emin Agalarov explained that retailers continue to pay rent as they expect to resume work in Russia. Some brands do not pay rent, but accumulate receivables, Malakhatko points out, noting that retailers who definitely intend to leave the Russian market do this.

Which brands have closed stores in Russia

Since the outbreak of hostilities in Ukraine on Feb. 24, more than a thousand international companies have said they will scale down business in Russia, suspend some or all operations in the country, stop investment in development, or exit entirely, according to the Yale School of Management. International retailers began announcing the suspension of operations in the country in early March. According to Knight Frank's commercial real estate consultants, at the beginning of April, 160 international brands announced the suspension of their work in Russia - in particular, 21% of them are fashion retailers.

The Inditex holding (Zara, Bershka, Oysho, etc.), H&M (H&M, COS, &Other Stories), Adidas and Uniqlo have suspended the work of their stores. Prior to the sale to a consortium of investors from CHINA , LPP (Reserved, House) stores were closed at the end of May. In addition, Inditex decided to terminate the lease agreements and completely close about 50 stores of its brands, but explained this by global network optimization.

How closed IKEA and Zara affected the turnover of non-food products Business

Some foreign retailers that have decided to leave the market have sold their local business to management, franchisees or new investors. Thus, the French cosmetics manufacturer L'Occitane transferred the business to local management, the Spanish retailer Mango began transferring the business to Russian partners. The Swedish household goods chain Jysk, shoe manufacturers Crocs and sporting goods Nike have finally left the Russian market, and the Swedish furniture manufacturer IKEA is preparing to leave the Russian market.

RBC sent requests to Inditex, Decathlon, Fast Retailing (Uniqlo). H&M and Adidas declined to comment.