Business tenants bleed as pandemic cuts deep

By Trung Tin, Phuong Anh   May 28, 2021 | 12:00 am PT
Business tenants bleed as pandemic cuts deep
Closed businesses seen on Tran Phu Road, Hoi An Town, in March 2021. Photo by VnExpress/Anh Tu.
The Covid-19 pandemic is inflicting deep losses on tenants forced to end their contracts early. They are having to forgo large advances or approach courts for relief.

Kha, who sells imported goods in Ho Chi Minh City, recently returned a house in Tan Binh District before the rental contract ended, resulting in losses of VND1.15 billion ($49,700).

The losses comprised a six-month deposit (which the landlord kept because Kha broke the contract), rent and money he had spent on refurbishing the house.

He has been leasing the house to five companies, but because of the pandemic, all but one left and he could not find new sub-tenants.

"I had to do it because keeping the property might result in even bigger losses."

Other tenants have also been caught in the same situation as the pandemic wrecks their business and causes revenues to plummet to a point where they cannot continue to pay the rent and are forced to return the property.

Huong, founder of a massage and spa chain serviced by blind people, signed a five-year contract in February last year for a two-story house in the popular tourist destination of Hoi An Town. She paid as advance three years of rent at VND2.46 billion.

Having established outlets in three other locations and received positive feedback from foreign tourists, Huong was confident that it would take her only two years to recoup her investment.

But her establishment was not able to operate "normally" for even a single day last year, following the Covid-19 outbreaks in March and July, and the flooding in the last quarter of the year.

With most of the staff leaving because there was no work, Huong asked the landlord in February this year for a 50 percent discount in rents to survive the pandemic. The landlord refused.

Then she asked to terminate the contract early and the landlord demanded a fine of VND840 million, which she considered too high, so she lodged a lawsuit to get justice.

Huong’s landlord told VnExpress Friday that he had offered to reduce the fine to VND450 million, but she had refused that, too.

Taking the matter to court was also a decision taken by movie chain CJ CGV Vietnam earlier this month. The company sued two property companies as it wanted to terminate the contract without having to pay any fine because of force majeure circumstance, which is an unforeseeable one that prevents someone from fulfilling a contract, like the pandemic.

A company spokesperson who did not want to be named told VnExpress that CGV had to go to court because negotiations with the property developers failed.

Nguyen Hong Hai, CEO of HCMC-based real estate developer VNO, said that last year was a challenging time for the leasing market and the situation started to get bad again this month with the latest Covid-19 wave.

When it comes to terminating leasing contracts early, neither the tenant nor the landlord gains, with the former having to bear losses while the latter faces uncertainty in being able to find new tenants, he said.

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