Dubai: There’s a clear spike in the number of bounced cheques issued by retailers… but so far mall managements in the UAE have not imposed fines on these. At least for now.
As per their contracts, the penalties for not having sufficient funds to cover the cheques – issued to pay quarterly rents – could vary between Dh1,000 to Dh5,000. “Thankfully, mall managements, by and large, are waiving these penalties even as the number of cases of cheques getting bounced spike,” said the owner of a leading retail chain.
“Under the circumstances, when sales are still way below pre-COVID-19 levels, malls managements are taking the long-term view. They do realise that their tenants are having issues, and imposing a penalty is just not the right way.”
But how long can mall managers take the lenient option? Industry sources say that retailer cashflows will continue to be volatile until such time enough consumers believe they can start spending a bit more freely.
In that regard, the many sales promotions Dubai’s retail sector is hosting in the next few weeks could give an indication of consumer behavior. “Offering discounts is the only way shoppers will respond,” said a mall manager. “But the breakthrough for malls and retailers would be when shoppers return even when no promotions are on offer.”
‘Don’t present the cheques’
Meanwhile, retailers have been telling their landlords to delay presenting rental cheques until their sales stablise. “Most of our landlords have been extremely cooperative to such requests,” said the regional head of a restaurant chain. “Only a few single-mall landlords have disregarded this.
“In some cases, we have replaced the quarterly cheques – but it’s all dependent on the location. Landlords are not willing to negotiate on rent reduction or rent deferments at locations where sales have bounced back to almost pre-COVID-19 levels.”
Different rules apply
According to retailer sources, the biggest relief packages are coming from the malls… but landlords with street-side locations are still playing it tough. “There’s less chance of a rental compromise them – they would rather see their unit remain vacant than consider offering some rent relief,” said a retailer whose fashion brand is split between mall and high-street locations.
“By summer, if sales are not going to improve, these landlords will face an exodus from their stores. More retailers are looking at shifting locations – it’s better to shift than pay the unsustainable rents at the current location and then go out of business.
“How can any landlord justify sticking to the same rent levels when stores in the same area – and brand new ones, at that – could be going for Dh200,000-Dh300,000 less than what he’s charging?
“These landlords just don’t seem to realise how serious the situation has become post-COVID-19. The same old rules of leasing cannot apply any longer.”
There are also bank penalties on cheques that do not have the funds in the account. "Bank penalties are separate and these charges depend on the bank, duration, and level of relationship, etc.," said a retailer. "If the landlord presents the cheque again and then files a police complaint, if we don’t pay up it becomes a case. Then you pay a percentage of the cheque value to make it a civil case.
"Above Dh200,000, it’s a criminal offense to bounce a cheque but below that it turns into a civil offense. But the limit is different in each emirate."