COVID-19-Era Retail Bankruptcies and the Rent Flashpoints
As retailers and landlords continue to have difficult negotiations over rent payments while stores are closed during the coronavirus pandemic, the conflict is coming into clearer view in the handful of retail bankruptcies already under way.
On Tuesday, the Virginia federal court overseeing the Pier 1 Imports Inc. bankruptcy agreed to extend its rent deferment period, even as landlords objected that that would go past the 60 day rent-deferral permitted by the bankruptcy code. Pier 1 filed for bankruptcy on Feb. 17.
The development points to a new dynamic in these proceedings caused by the pandemic. The bankruptcy process is meant to give financially troubled companies some relief by allowing them to avoid enforcement actions for unpaid debt from before their bankruptcy, and to renegotiate with landlords and vendors. But it also generally requires companies to pay the expenses they incur during the bankruptcy. The COVID-19 era has provided more room for exceptions to that norm, giving retailers some additional breathing room while their stores are closed to customers, but pushing landlords to complain about being treated unfairly in the process.
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“The larger stores with greater rent will have a more significant impact on the landlords and their lenders if concessions are required in order to get through the pandemic,” said Joel Shapiro of Blank Rome LLP.
“This also means the unpaid or deferred post-petition rent will ramp up much quicker, and possibly cause a strain on the chapter proceeding that will make it more difficult to manage and come out the other side,” he said.
“COVID-19-Era Retail Bankruptcies and the Rent Flashpoints,” by Sindhu Sundar, was published in WWD on April 29, 2020.