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Gap Sues Simon-Run Malls Seeking to Cancel Leases Over Covid

July 24, 2020, 3:41 PM

Gap Inc. and its leading subsidiaries sued top shopping mall operator Simon Property Group LP in Delaware, seeking a Chancery Court order canceling hundreds of store leases or, short of that, letting the retailer avoid rent indefinitely, retroactive to the first coronavirus-related store closures in March.

“Even now, as government restrictions ease for some activities and types of businesses but not others, the disease remains virulent, and extensive guidelines are required” that “will radically change the shopping experience for a long time to come,” the complaint says. “In a world of unforeseeable events, the circumstances the subject stores have faced are at the extreme end of unforeseeability.”

The lawsuit, filed Thursday, comes a week after Gap brought a similar case in state court in Chicago against Brookfield Asset Management unit Brookfield Properties and dozens of malls it runs. Brookfield sued Gap in Texas in June over missed rent payments.

Both of Gap’s suits include its subsidiaries Old Navy, Banana Republic, Athleta, and Janie and Jack as plaintiffs. The Delaware complaint targets hundreds of individuals malls, but it claims they’re “so thoroughly dominated and controlled” by Simon that it’s effectively their “business conduit and alter ego.”

According to Gap, the Covid-19 pandemic imposed “severe and irreparable hardships” on the company and its brands that couldn’t have been anticipated when the store leases were signed.

Rather than getting the chance to operate attractive “retail space in vibrant shopper centers,” they’re allegedly “expected to downgrade services in the interest of health and safety,” while most “consumers are still too concerned about the risk of entering a store to return.”

The pandemic has “frustrated the express purpose of these leases and made their principal object illegal, impossible, and impracticable, all for a period of time that remains unknown and unknowable,” according to the complaint.

“And this crisis is far from over,” the suit says. “Even after restrictions limiting operations at the premises are lifted, the conditions under which retailers are expected to operate, and the environment in which they will have to operate, are nothing like what was contemplated and promised.”

That allegedly hasn’t stopped Simon from demanding rent.

Cause of Action: Section 341 of the Delaware Code.

Relief: Rescission or reformation of the leases.

Response: Simon didn’t immediately respond to a request for comment Friday.

Attorneys: Gap is represented by Morris James LLP and Robins Kaplan LLP.

The case is Gap Inc. v. Simon Prop. Grp. LP, Del. Ch., No. 2020-0611, complaint filed 7/23/20.

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com

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