Law360 (July 20, 2020, 5:11 PM EDT) -- Several retail companies have asked an Illinois state court to find that they don't owe a Chicago property manager any more rent under the leases they signed, saying neither side anticipated a pandemic would prevent the retailers from using the shopping spaces they rented.
Retail shops including The Gap and Old Navy claimed Thursday that their various landlords, who are controlled by Brookfield Properties Retail Inc., are wrongfully demanding rent payments for shopping centers they leased without ever considering a public crisis like the novel coronavirus would force them to suspend operations and preserve finances from revenues that "dropped to zero overnight."
The retailers' landlords have also disputed their right to keep their shops closed or modify their leases given the "radical change in circumstances," according to the lawsuit. They're asking a judge to declare that they haven't owed their landlords rent since state government orders required them to close their doors in mid-March, and that they should be able to reform their leases.
The suit also claims that the shopping center landlords have been unjustly enriched by any rent payments they received while the retailers have had to either stay closed or operate under COVID-19 safety restrictions. The retailers are also asking for repayment of any rent money they have paid under the leases during the affected time period, arguing their purpose of providing commercial retail shopping space has been frustrated.
"Under principles of good conscience, [the] landlords should not be allowed to retain the rent and other consideration paid for the period of time that [the retailers] were unable to operate retail stores at the premises as originally contemplated by the leases," the suit said.
The ability to operate a physical store was the "sole consideration" the retailers claimed they received in exchange for signing leases with their various landlords. Without that ability, "the transactions between [the retailers] and [their] landlords that were embodied in the leases make no sense," they said.
The retailers' leases are composed of substantially identical language outlining the fixed terms under which they were allowed to operate their businesses, according to the suit. But the ongoing COVID-19 pandemic has made it "impossible and impracticable" for both the retailers and their landlords to continue performing their obligations under the leases, the suit claims.
Had the parties known the retailers wouldn't be able to operate their shops for the entire duration of their lease, they "would not have agreed on the same amount of rent and other consideration," the suit said.
The retailers asked the court to declare that they have owed no rent to their landlord from the time of the shutdown until a reasonable time after they have resumed their full operating capacity, claiming they "were promised retail space in vibrant shopping centers that would be attractive to consumers."
"However, retailers are now expected to downgrade services in the interest of health and safety, and consumers are still too concerned about the risk of entering a store to return to the shopping centers en masse," the suit said. "Landlords themselves have imposed restrictions on consumer behavior that will deter consumers from visiting the shopping centers and tenants' store."
Representatives for Brookfield and counsel for the retailers didn't immediately respond to requests for comment Monday.
The retailers are represented by Charles Valente and Isaiah Fishman of Kaplan Saunders Valente & Beninati LLP.
Counsel information for Brookfield wasn't immediately available Monday.
The case is The Gap Inc. et al. v. Brookfield Properties Retail Inc. et al., case number 2020-CH-04984, in the Circuit Court of Cook County, Illinois.
--Editing by Daniel King.
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