Recent Developments for Sectors Entering Normalization Phase
We published a legal alert on May 11, 2020 evaluating the Ministry of Health’s suggested measures for the reopening of shopping malls. In the previous legal alert, we noted that there are discussions about the delegation of the authority between public institutions and that the Ministry of Interior (“Ministry”) would likely address these issues. As foreseen, the Ministry published the procedures and principles for the Ministry of Health’s suggested measures and addressed the delegation of authority. The Ministry first instructed governorships to take the necessary decisions under the Public Health Law, and define a legal ground for the administrative fines and criminal penalties and determine the authority that will be enforcing these fines and penalties.
If malls and retailers do not implement the measures, they could receive administrative fines in the amount of TRY 3,150 (approximately USD 450) per violation based on Article 282 of Public Health Law and TRY 392 (approximately USD 30) per violation under Article 32 of the Misdemeanor Law. The Ministry announced that these violations might lead to imprisonment from two months up to one year under Article 195 of the Criminal Law. In addition, entities failing to implement the measures might be subject to license cancellations and closures.
The Ministry announced new measures and details in addition to those announced by the Ministry of Health on May 9, 2020. We summarized the Ministry’s new measures under the Regulatory Developments section of this alert.
With the news regarding “reopening on May 11” some shopping malls stated that they were not closed during the period; some stated that they were partially open, with supermarkets and pharmacies located in the malls continuing to operate; and other malls like Zorlu, Istinye Park, Kanyon and Akasya stated that they are aim to reopen by the beginning of June.
The term “reopening” of the shopping malls merits explanation. According to the information we gathered from the real estate sector, none of the shopping malls have reopened at 100% capacity. The average visitor capacity is between 10% and 30%, and occasionally 50% due to the mall’s design, number of stores and sizes of stores.
Cautious retailers state that they opened their stores in locations designated as “open air shopping malls”. The retailers that have decided to open are Turkish fast fashion brands stores selling ready to wear clothing and shoes, optical stores, baby stores, and sports stores. A large local department store was expected to reopen their stores in several shopping malls on May 12 and foreign fast fashion brands are planning to reopen within the next week.
Given this new burst of activity, discussions regarding lease agreements between shopping malls and retailers are on the horizon. Shopping mall managements will request from tenants to re-open their stores, to increase the turnover and the number of the visitors, while some retailers are willing to stay closed due to financing, supply chain or similar problems. The Association of Shopping Malls and Investors (“AYD”) issued advisory decisions for malls to cease collect rents for a certain amount of time. However, some shopping mall investors declared that they are unable to follow AYD’s decision because their malls are publicly traded and they have certain contracts with banks.
Another issue in the lease agreement discussion are retailers’ requests for turnover rent without a minimum. However, shopping malls may not respond to these requests due to their obligations to third parties (such as banks and capital markets regulations), which will likely result in a higher number of lease adaptation litigations than expected, and some retailers will ask for early termination without penalty. Therefore, it is important to determine the flexibility of the parties before these discussions, in terms of these requests, considering the subject contracts and Capital Markets regulations, if applicable.
In the following days, we will see the frequency of the supervision activities and how determined the public authorities will be. Wherein there is the supervision of public authorities, there must be considerations on anti-corruption and abuse related measures. It will take time for shopping malls to comply with all of the reopening measures. Some shopping malls may stay closed to take the necessary steps regarding the measures. Incompliance with the anti-corruption requirements could mean the farfetched possibility of reclosing shopping malls becoming a reality. Further, some shopping malls may shut down due to the additional costs or other reasons and may wish to make use of the premises as offices or other similar purposes of use. With regards to such changes, zoning plans and zoning plan notes should be carefully evaluated.
We hope that the recent developments encourage the shopping malls and retailers to shape the ethical principles for the sector. The just and sustainable management of a sector cannot be achieved merely by acting in accordance with the regulations. Determining the ethical rules for the real estate sector surrounding shopping malls and retailers is a necessary tool to prevent problems that may occur tomorrow due to today’s actions. Considering that the functions of the international organizations are criticized, most of the revolutions and major changes are formed following wars, social disorders and crises. If it is accepted that this might be the right time to take actions for determining the ethical characteristics of the sector,
the tension between the parties may be lowered.
The risk assessments regarding audits and compliance with these measures will be a hot topic in the coming days. Lease agreement discussions between malls and retailers will likely include arguments about compliance with the reopening measures and ethical guidelines, and will inevitably lead to many malls and retailers parting ways.
The Ministry published the following procedures and principles regarding the measures determined by the Ministry of Health.
b.Maximum Number of Customers in Stores
d.Measures for Stores Located in Shopping Malls
e.Measures for Employees
f. Supervision and Training
Please stay up to date with further developments through the Esin Attorney Partnership Coronavirus Helpdesk.