T1 stopping tenants from leaving: 'We are like hostages'
The bankrupt T1 Mall of Tallinn has fixed-term agreements with its tenants which it refuses to terminate early as the shopping center is up for auction complete with valid rental agreements and real estate. Traders feel they are being held hostage in a mall with no customers.
Taking a walk around T1 is a bleak experience. There is still some commercial activity on the first floor but only a few shops still open on the second, while those on the third can be counted on the fingers of one hand. These businesses are not there voluntarily.
Many of the few businesses still left agreed to share with ERR what is happening provided their anonymity is guaranteed due to ongoing rental disputes that require confidentiality. Around ten conversations owners had with ERR reflected the same patterns, criticism and despair.
Held hostage through contracts
The reason T1 is still open concerns five-year rental contracts the bankrupt owner Tallinna Moekombinaat is using to keep tenants on its leash by refusing to terminate them early.
Some are struggling to keep shops open, while others have closed doors as it helps keep costs down. The center has also put pressure on owners to reopen, threatening to charge them full rent retroactively. Most have managed to secure zero or discount rent agreements, with some only paying for accessory expenses or electricity. However, companies have had to secure the latter themselves, based on their turnover and skill at negotiating.
Traders, who are often behind the counter themselves as they cannot afford to hire sales personnel, say that the second and third floors see one hourly visitor. Turnovers have dried up.
Tenants feel they are being held hostage as there are no customers, while there are no customers because there are no stores – just empty boxes. Traders find that closing the mall's doors would be fair toward customers and shops. But T1 disagrees, whereas the reason is very simple – the trustee in bankruptcy is looking for a buyer via an auction for a company with long-term fixed rental contracts and real estate. Allowing tenants to leave would further lower the mall's value. The fact that contracts are artificial and business activity virtually nonexistent is of no consequence.
Many traders owe the center tens of thousands of euros with no way to earn the money. Others, who have shops in several malls, need the T1 branch to stop making a loss to save the business.
False start in a half-empty building
Conversations with shopkeepers revealed that T1 was in trouble from the first. The mall opened in early November 2018 with roughly 40 percent of premises still vacant, despite promises of major brand names and no vacancy. Traders were promised a constant flow of customers, while none of these pledges were included in contracts. None of it ever materialized, with some premises remaining empty from the first. For example, T1 managed to fall out with Apranga Group (that represents such brands as Zara, Mango, Aldo, Hugo Boss, Calvin Klein and Tommy Hilfiger) without which no mall can be successfully run in Estonia. CEO of T1 Allan Remmelkoor promised to prove otherwise but failed to deliver.
Tenants who talked to ERR described opening a half-empty mall as one of the biggest mistakes made as first impressions only happen once. British retail chain Debenhams opened its store after postponing it several times but packed up and disappeared as if overnight a few months ago.
The fact that access to the mall from Ülemiste and the train station requires one to walk around half the enormous building before finding a door and the coronavirus crisis did not help matters. Many traders said that while they initially did fine for six months or a year, the mall's financial problems finally became a matter of public record and customers disappeared.
Declaring bankruptcy drove the final nail into T1's coffin as customers were left with the impression that the mall has closed and its doors and boarded up its windows.
"Every single customer who walks in the door wonders that we're still open and asks when we plan to close," one trader said.
The only businesses to have done well or more or less well are the Skypark on the fourth floor, the big wheel on the roof and the Selver supermarket on the first floor. People also visit the movie theater even though there is much untapped potential.
Trustee: The mall will be sold complete with rental contracts
The next auction to sell T1 is set to take place in November. The first round with a starting price of €85 million failed, with the new price set at €65 million. Registration closes on October 11.
Trustee in bankruptcy Indrek Lepsoo said that AS Tallinna Moekombinaat's company with the property at Peterburi tee 2 and valid rental contracts will be sold.
"The company will be sold complete with things, rights and obligations pertaining to it and its management, including contracts. All rental contracts will transfer to the new owner, with valid contracts numbering 144. Debtors' trademarks and other movable property in commercial pledge are not part of the company," Lepsoo said.
Because the bankruptcy process makes it impossible for heads of T1 to comment, trustee in bankruptcy Kristo Teder spoke in their place.
"As trustees, our task is twofold, to successfully conclude the sale of the mall and manage it until said process is completed. We are actively talking to tenants and trying to be as flexible as possible. Our aim is to find a buyer for the shopping center as soon as possible," Teder said when asked why fixed-term contracts are not relinquished or the doors closed until a new owner is found.
Teder did not deem it possible to comment on the mall's financial situation, including its customer figures.
"Attendance has improved over time and we are planning future campaigns. All regular activities have and will continue, with a number of caterers, restaurants and services available," Teder said.
Follow ERR News on Facebook and Twitter and never miss an update!
Editor: Marcus Turovski