“We are fighting for survival”; shops in malls in Hungary are in trouble
EnglishTroubled tenants were pushed to the limit last year when shopping malls took advantage of a legal loophole and forced tenants to pay their rent even when shoppers were not allowed in their stores. The situation is not ideal now either, as in contrast to the so called magnet stores of large multinational companies, the smaller shops, which are typically Hungarian-owned, pay a fixed rent per square metre, to top it all in euros.
The conflict between landlords and tenants began in March last year. During the six weeks of the emergency, the government decree ordered that customers should only be allowed to go to stores selling food and other essential products.
The decree, however, did not order the closure of the other stores, and also the malls could be kept open.
his led to an impossibly absurd situation, as the malls, claiming that the stores did not have to close, continued to expect tenants whose stores did not have any customers, i.e. had no turnover, to pay the rent, Katalin Neubauer, Secretary General of the Hungarian National Trade Association (MNKSZ) told Növekedés.hu.
Act 6:336 par (2) of the Civil Code provides that no rent shall be payable for the period during which the lessee may not use the leased property for reasons beyond their own sphere of influence.
In this case, the most important question is which circumstances may qualify as causes beyond their own sphere of influence.
This provision provides guidance for risk-sharing between the parties related to the use of the leased property, but legal practice does not yet define clearly which circumstances are in the lessor's sphere of influence and which are in the tenant's, PWC stated in their analysis of the legal environment.
This loophole would have been eliminated if the stores subjected to restrictions had to close in accordance with the proposal of MNKSZ, but this did not happen in the end.
The deadlock remained and negotiations between tenants and landlords dragged on until the end of the summer.
One-sided fight
Katalin Neubauer pointed out that the situation is also made worse by the fact that shopkeepers who issue invoices and generate their sales revenue in Hungarian forint, have to pay the rent, overheads as well as marketing costs to the malls in euros, so for them it is devastating that the EUR/HUF exchange rate exploded.
We wanted to fix the EUR/HUF exchange rate around 330 forints in the spring, but we didn't succeed, and now we are at 360 forints, which causes great concern to traders
Ms Neubauer pointed out, adding that the difficulties do not affect everyone equally. While the malls allow magnet stores such as popular fast fashion chains to pay the rent in proportion to their sales revenue, the typically Hungarian-owned small shops have to pay a fixed rental fee per square metre, which is anything but low.
In the case of non-food stores, shops are expected to pay 40–100 euros per square metre in the capital and 25–40 euros in the countryside, plus operating and marketing costs, so the rent for a 200 square metre leased property can go up to eight million forints.
We have been trying to ensure for years that Hungarian retailers should be allowed to pay in proportion to their sales revenue, but so far without success
the secretary general noted.
No concessions made
The issue of rental fees has been in the air ever since and casts a shadow on collaborations. Katalin Neubauer says she does not know of any specific shop that managed to negotiate a rent waiver or even a substantial discount.
"But the malls have nothing to fear." Although there are a number of initiatives, such as municipalities trying to revive shopping streets, it is still impossible to compete with malls, which act as entertainment centres and offer all possible facilities. Unfortunately, shops operating outside of the malls are as if they did not even exist, Ms Neubauer pointed out.
Turnover isn't the same as before
In terms of turnover, the summer months were better, but in the autumn and winter shops saw a dramatic, 30-50 percent decline. And although the situation improved a little in January and February, it was only due to the fact that fashion retailers started sales much earlier and with bigger discounts, which resulted in even lower margins.
It is easy to see that this fact, together with the higher rent, has had a devastating impact, Norbert Csordás, managing director of the Devergo group and spokesman for the Advocacy Association of Shopping Mall Tenants noted.
In his view, the impact of the third wave of the coronavirus can already be seen in the number of shoppers; there are closures, even though the stores have already filled up their stock for the spring. Even shopping malls now admit that visitor numbers have been falling for a while.
We surveyed 16 malls in Budapest and in the countryside, and the latest data show that 84 stores have closed so far; but if the situation does not improve and stores get no help in the form of wage subsidies or the revision of rental payments to allow forint-based payment calculated with the average EUR/HUF exchange rate of the last two years, many other stores will suffer the same fate in the near future
Norbert Csordás said.
This will affect a huge number of employees, as there are 18,000 clothes and footwear stores in Hungary, and according to the calculations of the advocacy association representing SMEs, about 50,000 employees work there, mostly women, whose jobs and livelihood are at risk because of mass closures.
On top of that, in this extremely unpredictable situation fashion retailers are afraid to pile up bigger stocks, as they have already adjusted to a state of uncertainty.
“Therefore, even if everyone was vaccinated overnight and the virus disappeared completely, there would still be a downturn. It will take another year until everything gets back to normal and we can start recovering from our losses and start repaying our bank loans”, the spokesman concluded.
