U.S. retail sales increased by 1.9 percent month over month and 5.4 percent annually in September, U.S. Commerce Department stated Friday. This is more than twice what economists expected, more than triple August’s 0.6 percent month over-month growth, and nearly double August’s 2.8 percent annual increase. After record-breaking monthly drop this spring, sales have been increasing month-over month and year-over–year every month. September’s overall growth was largely due to the 11 percent increase in sales at clothing stores. Last month saw 9.7 percent growth in sales at departmental stores. These have been out of fashion for many years and are often not in style with shoppers.
According to the National Retail Federation (NRF), retail sales in September were up 1.3 percent seasonally from August. It also excluded gasoline stations, restaurants and automobile dealers. The year-over year gain was more than twice the August 5.7 percent increase, which was unchanged in July. On a three-month moving mean, the NRF numbers showed a 9.2 percent increase year-over-year.
Matthew Shay , President and CEO of NRF, stated that retail sales saw impressive growth in September. “Consumers continue their resilience and strength in the face of this pandemic. Both retailers and consumers are adapting to this environment by shopping differently and focusing on certain categories.
Total Retail’s Consider: This could be the October surprise that we have all been waiting for. Despite retail sales having been steadily recovering since spring when they plummeted after malls and stores were closed due to the coronavirus, September’s numbers exceeded what even the most optimistic economists expected. The good news: According to NRF, the NRF reports that retail sales have seen a rise in confidence and an improved labor market. Even though there are still many unemployed, more people are returning to work, which makes them more confident about spending. Retail sales for September reflect the government’s support and increased savings. Consumers are now shopping again, which is reflected in higher retail sales. Some of the money that is being spent on personal services, such as travel and entertainment, is now going to cash registers. These numbers, along with other economic data, show that the nation’s economy is on its recovery path,” Jack Kleinhenz, NRF Chief Economist.
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It is time to revise retail lease provisions in light of COVID-19
Beginning in March 2020, the first time the coronavirus pandemic struck the United States, many retailers had to close their doors to customers. The stock market plunged initially and the economy went into a major slump. In an unprecedented situation, where local authorities were closing down stores, landlords and tenants looked at their leases to find out their rights and obligations. In light of the changing retail environment, both landlords and tenants sought to clarify their contractual responsibilities.
Many of these issues remain unresolved seven months after the pandemic began. Most businesses are not operating at their full potential. To prepare for future deals in an uncertain and unstable environment, landlords should review key lease clauses such as force majeure or common area clauses.
The “force majeure” (or “act of God”) provision is the most obvious clause in a lease. This clause typically contains a list of force majeure events. These are events or occurrences that parties cannot control. The party that is obligated to perform is exempted from performing if there is a force majeure. This “tolling” is usually for the number days that such party is not allowed to perform.
It was rare that a force majeure provision included pandemics or viral exposures. These events must be included in force majeure clauses, and they should. Although a force majeure provision that refers to “government-imposed restrictions”, is likely to cover “shelter in place” and “safer in-place” orders that require businesses close, it might be prudent to mention such orders.
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Tenants may be required to notify landlords that they are making a claim under the Force Majeure Provision. This will also help to limit the time such force majeure is in effect. Landlords may want to insist that tenants pay rent, including triple net charges, regardless of the circumstances. Landlords are well aware that rent payments are an integral part of a tenant’s bargain to lease space and occupy it. Many landlords rely on tenants’ covenant to pay rent to cover their debts to lenders and keep their projects going.
Landlords need to ensure that landlords have sufficient control over common area language in their leases to allow them to adapt and respond to pandemics or other emergencies. Landlords might need to place items in the common area to improve safety and health conditions, and make any other changes that are not possible to conform to recommendations or requirements from the CDC, WHO or the state or local authorities. Tenants may be required to have access to the common area for customers to line up outside of stores due to physical distancing or store-capacity restrictions.
Restaurant owners may also need to be allowed to use a portion of the common area to seat their customers, if they are unable to provide tables for customers. The landlord should work with tenants to make sure that the common area is available for outdoor seating and queuing. This could prove vital for the tenant’s success.
However, landlords can make such conditions as giving notice to the tenant in writing and specifying the anticipated duration, peak times, and area that the tenant will be using. A landlord may also ask that the tenant clear the outdoor seating and queuing areas on a daily basis.
Although force majeure and the use of common areas can be a good starting point for addressing lease revisions after the current pandemic is over, there are many other provisions that deserve closer scrutiny. To ensure they are better equipped to react and adapt to the new normal that will be created until a vaccine is available, landlords should consult counsel.