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Simon Countersues Gap Over $107 Million in Lease Payments

Simon Countersues Gap Over $107 Million in Lease Payments

Simon Property Group LP countersued The Gap Inc., alleging the retail chain is using the Covid-19 pandemic as a pretext to avoid more than $107 million so far in lease payments on its stores nationwide.

San Francisco-based Gap is “taking opportunistic advantage” of the coronavirus’ devastating effects on the U.S. economy to refuse to make lease payments even though some of its stores have reopened, Simon’s lawyers said Wednesday in a Delaware Chancery Court filing.

The filing in response to Gap’s lawsuit last month seeking rent relief and some lease calculations is the latest front in the battle between the largest U.S. shopping mall operator and one of its biggest tenants. Simon filed a separate lawsuit against Gap in Delaware Superior Court in June seeking $65.9 million in unpaid rent. Gap is engaged in similar litigation with Brookfield Properties, another large mall operator, and several other landlords.

Gap, which also encompasses the Old Navy, Banana Republic and Athleta chains, didn’t directly comment on countersuit but said in a statement that, while some stores have reopened, Covid-19 restrictions are still strangling business in many parts of the U.S.

“We remain committed to working with our landlords on mutually agreeable solutions and fair rent terms,” the company said, “just as our industry and government partners have sat with us in good faith to shape the post-Covid business landscape.”

Retailers were hit hard by the pandemic-inducted shutdowns that started in March. Gap shares fell about 60%, with Kohl’s and Nordstrom Inc. seeing similar declines. Several other companies, including J. Crew, Brooks Brothers and Lord & Taylor, filed for bankruptcy, the largest number in the retail sector in a decade.

Simon’s lawyers noted in the filing that the disputed leases still have 40 months to run, meaning GAP is obligated to pay Simon a total of $790 million in rent and other charges. GAP is Simon’s largest national tenant, responsible for about 4 percent of the mall operator’s revenue, the filing shows.

Simon said in its counterclaims that Gap “has ample financial resources to meet its contractual obligations” but that the company’s “executive leadership made a calculated and strategic decision not to do so.” The company added it was business considerations -- and not virus fears -- that drove Gap’s decisions on which stores to reopen.

“The Gap’s re-openings were highly selective and strategic,” Simon’s attorneys alleged. “They had more to do with The Gap’s business objectives and implementation of its new business plans than they did with any legitimate Covid-19 concerns or temporary disruptions.”

The case is Gap Inc. v. Simon Prop. Grp. LP, No. 2020-0611, Delaware Chancery Court (Wilmington).

©2020 Bloomberg L.P.