Representatives of utilities companies and of the owners of shopping centres and business centres, and experts, told RBC that new relief for small and medium-sized businesses will harm those companies and owners. Landlords and the housing and utilities sector are also counting on state support because of the coronavirus.
Landlords across the country have found themselves in a vulnerable position because of the deferral of rent that the government has promised small and medium-sized businesses (SMEs), managers of commercial property and lawyers told RBC. In their words, the discount on property tax which the regional authorities are to give the owners of commercial property by way of compensation will not be enough to cover the losses.
Another relief announced for SMEs, a ban on disconnecting them from housing and utilities services, the cancellation of fines for non-payment, and payment by instalments, may require state subsidies to be given to the utilities companies themselves, so that they can carry on in the present conditions, specialists in the sector believe.
The government has announced further support measures for SMEs, as the businesses hit hardest by the coronavirus pandemic and the quarantine measures connected with it. Previously, relief on rent was given only to companies that rented property from the state, and not in the commercial sector.
RBC sent requests to the government and to the Ministry of Construction, asking them to clarify how the new relief can be put into practice, whether the federal budget will compensate the regions for the revenue they lose from reduced property tax rates, and whether utilities companies will receive subsidies.
A crisis for tenants
Because of the coronavirus pandemic, more than 2 thousand shopping centres across Russia have closed, the Russian Council of Shopping Centres reported. A record fall in visits to retail outlets, down to 70% of the figures for the previous months, had already begun at the start of March. Every tenant felt the fall in sales, or the absence of sales, except for food shops. Representatives of the sector forecast that in April and the following months rent receipts will fall by 90%, and that the owners of shopping centres will face a risk of default on loans of about 1 trillion roubles, which puts at risk at least 1 million jobs in shopping centres across Russia. Because of the pandemic, the fall in the turnover of chain and independent retail, of restaurants, cafes and shopping centres, and in traffic in this segment, is already estimated at 50-80%.
Without waiting for the authorities to decide, some of the largest owners of commercial property have already released tenants from payment. In particular, Ingka Centers, which manages the Mega chain and IKEA, is not charging rent or a service charge to tenants that have closed because of the pandemic, in compliance with the authorities' requirements, the company's press service told RBC. Crocus Group, which owns, for example, Crocus City Hall, the Vegas shopping and entertainment centre and the Tvoy Dom hypermarkets, has also decided not to charge rent to shops that have closed. the Kievskaya Ploshchad group of companies, the Tashir group, A.N.D. Corporation (part of the Safmar group) and O1 Properties declined to comment.
If putting the deferral of rent payments to the state into practice should not cause any particular difficulty, compelling private owners to make concessions is quite hard, commented Mikhail Viktorov, a member of the general council of Delovaya Rossiya: "Any owner has a limit, because of the cost of maintaining the premises and the tax burden."
The new relief can be put into practice by means of new amendments to the legislation, under which the landlord is obliged, within 30 days of the tenant's request, to conclude a supplementary agreement on a deferral of the rent, Vasily Malinin, head of the "commercial disputes" practice at the firm Rustam Kurmaev and Partners, explained to RBC. In addition, tenants have been given the right to reduce the payment for the period during which they were in fact unable to use the leased property. A landlord's refusal, and the charging of the rent in full, will be open to challenge in court once the strict stage of the quarantine measures is over, the lawyer noted.
Under the Civil Code, a ground for terminating a lease is a failure to pay the rent for more than two payment periods in a row, explained Dmitry Gorchakov, a partner at LDD and head of the "land use and real estate" practice. Forcible eviction is possible only by a court decision, however, and the courts have temporarily restricted their work because of the virus, the lawyer explained.
A discount on property tax
Under the new rules, as Prime Minister Mikhail Mishustin has promised, firms will for six months be able to pay rent according to their actual income, and to repay the debt already accumulated within a year, by instalments. The interests of the owners of premises are to be taken into account as follows: the government recommends that the regions give them a discount on property tax (the maximum possible rate is 2.2%; where the tax on real estate is determined from cadastral value, the maximum rate is 2%).
In Moscow a measure of this kind was already approved on 31 March, but only for retail properties. They will receive relief on property tax, land tax or payments for the lease of land from 1 March to 1 July if they give their tenants an aggregate discount of at least 50%, and in money terms that discount must be twice the sum of the property tax and of the land rent or land tax for those four months.
"The discount on property tax is negligible beside the discount that is to be given to the tenants," says Sergei Matyukhin, general director of KR Properties (which manages more than 800 thousand square metres of commercial property in the capital). "Today neither we nor the tenants have any clarity, or any understanding of when the isolation will end. Many tenants do not know whether, once it is over, they will be able to go on renting the premises at all," he says.
The Moscow support measure will be of little help to property owners. Take the Riviera shopping and entertainment centre as an example: the property tax on this centre for four months is 126 million roubles, and the land rent is 23 million roubles. In order not to pay these 149 million roubles into the Moscow budget, the shopping centre must release its tenants from payments of 298 million roubles, against total rent collections of about 333 million roubles (the calculation is based on the centre's revenue of 1 billion roubles for 2018; there are as yet no figures for last year). After the discount is given, Riviera will be left with 35 million roubles of revenue for four months. That is five times less than the centre would have been left with if the rent had not been reduced and the tax had been paid in full,
- says the managing partner of the law firm Consul Group, Sergei Pivovarchik.
In Matyukhin's view, for the support measures to work effectively, discounts and deferrals need to be given to tenants from a limited range of sectors of the economy, and landlords need in addition to be given deferrals on payments to the banks if the building is pledged or mortgaged.
In a letter to President Vladimir Putin, the Russian Council of Shopping Centres has already asked for tax payments to be cancelled for a time, for the cost of utilities and the land rent to be reduced, and for a moratorium on inspections of shopping centres.
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