Shoppers ascend and descend escalators at the King of Prussia Mall, owned by Simon Property Group, United State’s largest retail shopping space, in King of Prussia, Pennsylvania.
Mark Makela | Reuters
The biggest mall owner in the country Simon Property Group is suing one of its biggest tenants, Gap, for failing to pay more than $65.9 million in rent and other charges due during the coronavirus pandemic, according to a lawsuit filed Tuesday in Delaware state court.
The court battle highlights the mounting tension between retail landlords and their tenants, many of which had stores forced shut due to the crisis and as a result stopped paying rent or paid less rent. Similar litigation is expected to ensue, real estate experts have said. And many landlords are also beginning to send default notices to retailers that have skipped payments, which could result in them forcing businesses out of their properties altogether.
Apparel retailer Gap had already stated publicly in late April that it stopped paying rent on its temporarily shuttered stores, which amounted to roughly $115 million in monthly expenses in North America.
As CNBC previously reported, Simon has 412 Gap stores, including Banana Republic and Old Navy, at its malls. This makes Gap Simon’s biggest in-line tenant at its malls in terms of rent.
Gap had also warned in late April that litigation could arise, as a result of its skipped payments. “Although we believe that strong legal grounds exist to support our claim that we are not obligated to pay rent for the stores that have been closed … there can be no assurance that such arguments will succeed,” the company said in a filing with the Securities and Exchange Comission at the time.
Simon, per the lawsuit filed earlier this week, is asking the court to order Gap to pay up to $66 million, in addition to future rent payments.
Representatives from Simon and Gap did not immediately respond to CNBC’s requests for additional comment.
Simon Chief Executive Officer David Simon has made it clear he expects rent to be paid, despite any temporary store closures.
“The bottom line is, we do have a contract and we do expect to get paid,” he told analysts during a post-earnings conference call on May 11.
Gap shares were down less than 1% Thursday morning in premarket trading. Simon shares were up more than 4%.
Gap, meantime, is set to report quarterly earnings after the bell Thursday.