The United States' largest shopping mall operator, Simon Property Group, has just filed a lawsuit against one of its biggest tenants over its missed rent payments. The company filed the suit against Gap, who it claims has not paid rent for its stores amounting to about $65.9 million.
According to the suit, which was filed in a Delaware state court on Tuesday, the San Francisco-based clothing and accessories retailer had not been paying its rent since the start of the pandemic in late-March and early-April. This included the rent its sub-brand outlets in Simon Property's malls such as Old Navy, Athleta Inc, and Banana Republic.
The lawsuit is one of the first legal actions taken by a landlord against its tenant following the months of rising tensions over missed rental payments. Due to the lockdowns and forced shutdowns, a vast majority of US retailers had stopped paying rent. This has forced landlords to send default notices to tenants that had neglected to settle the issue with them after reopening.
In late April, Gap had mentioned in a statement that it had decided to stop paying rent on its closed stores. The apparel retailer reasoned that it was no longer able to keep up with its monthly expenses for its North American operations, which had reached around $115 million per month. Gap had acknowledged that it may face legal actions as a result of its decision to halt rent payments.
In a filing with the Securities and Exchange Commission in April, Gap reasoned that it does have strong legal grounds to halt its rent payments given the forced closure of its stores. It added that it was not obligated to pay rent on stores that were not earning them any money. The company disclaimed that while it believes that it is doing the right thing, there is apparently no assurance that it will succeed in the litigations.
Gap currently has around 412 outlets located in malls owned by Simon Property. This includes outlets for its core Gap brand and its other sub-brands. The number of stores it has on Simon Property's malls makes it the operator's largest tenant in terms of rent.
In the lawsuit, Simon Property is asking the court to order Gap to pay its unpaid rentals, including other relevant fees. During Simon Property's earnings call in May, the company's chief executive officer, David Simon, assured stakeholders that the company will continue to collect rents from its tenants despite the forced temporary closures. He added that all of the tenants had signed contracts and are therefore required to pay rent.
