Retail

The biggest U.S. mall owner, Simon Property, sues Gap over skipped rent payments

Key Points
  • Simon Property Group is suing Gap for failing to pay more than $65.9 million in rent and other charges due during the coronavirus pandemic. 
  • The court battle highlights the mounting tension between retail landlords and their tenants. 
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, saying it failed to pay more than $65.9 million in rent and other charges due during the coronavirus pandemic

The battle in Delaware state court highlights the mounting tension between retail landlords and their tenants, many of which stopped paying rent after the crisis forced them to shut stores. The suit was filed Tuesday, and more of its kind are expected. 

Many landlords are also beginning to send default notices to retailers that have skipped payments. 

Apparel retailer Gap said in late April that it stopped paying rent on its temporarily shuttered stores, amounting to about $115 million in monthly expenses in North America. 

Simon malls have 412 Gap stores, including Banana Republic and Old Navy. This makes Gap Simon's biggest in-line tenant at its malls in terms of rent. 

Gap 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 Commission at the time. 

Simon is asking the court to order Gap to pay up to $66 million, in addition to future rent payments. 

"We remain committed to working directly with our landlords on mutually agreeable solutions and fair rent terms, just as our hundreds of industry and government partners have sat with us in good faith to shape the post COVID business landscape," a Gap spokesperson told CNBC in an emailed statement. "We are pleased with the progress we've made with many landlords as we're reopening stores across the country, moving forward together towards growth." 

A representative from Simon did not immediately respond to CNBC's request 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 May 11 earnings conference call. 

Gap shares were down 2.1% in Thursday's premarket. Simon shares were up 4%. 

The filing was reported earlier by The Real Deal. 

Gap is set to report quarterly earnings Thursday afternoon. 

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