The Real Deal New York

Gap sues Westfield for alleged overcharges at more than 2 dozen malls

Large tenants could get more aggressive in challenging landlords over expenses
July 18, 2018 08:30AM

The World Trade Center Mall (Credit: Getty)

Gap is dragging its landlord Westfield into court over disputed common charges — a disagreement that could become more common amid the tough retail environment.

The retailer filed its lawsuit in California state court in Los Angeles in May, claiming Westfield used fraudulent measuring techniques that forced Gap to pay more than its share of expenses at more than two dozen shopping centers, the Wall Street Journal reported.

Standard mall leases usually allow landlords to charge tenants for their proportional share of expenses like taxes and maintenance fees. Gap’s court papers say its share of expenses were calculated based on the “gross leasable area” of a property, meaning the smaller the size of the property, the more Gap pays proportionally.

Gap claims that department stores and shops with a “primary exterior entrance” could be excluded from the gross leasable area. But it argued that vacant department stores should not be included, and said that Westfield improperly counted some empty department stores as if they were up and running, according to the Journal.

The retailer also claims that Westfield erroneously said some stores had primary exterior entrances when they didn’t, and that it counted movie theaters as department stores.

It’s not uncommon for tenants and landlords to come to such agreements on how to calculate common charges, but greater competition from e-commerce is making for “fertile territory for there to be more challenges” to the retail market, said Douglas M. Bregman, a senior partner at the law firm Bregman Berbert Schwartz & Gilday in Maryland.

“Larger tenants are not thrilled at paying anything that they don’t have to pay,” he told the publication.

European mall landlord Unibail-Rodamco earlier this year purchased Westfield, which operates Westfield World Trade Center in New York, Westfield Century City in Los Angeles and Westfield Old Orchard in suburban Chicago, for about $15 billion.

Thanks to a long-standing tradition of giving anchor tenants say over how a shopping center is positioned, mall landlords are now struggling with those larger retailers as they try to redevelop troubled properties. The steady exodus of anchor tenants, meanwhile, has landlords rethinking the co-tenancy clauses they offer in leases for smaller tenants. [WSJ] – Rich Bockmann