Simon Property, largest US mall operator, sues Gap over $65 million in skipped rent

The court battle highlights the mounting tension between retail landlords and their tenants.
Mark Makela / Reuters
/ Source: CNBC

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 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.

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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.

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 May 11 earnings conference call.

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

Gap is set to report quarterly earnings Thursday afternoon.

This story originally appeared on CNBC.