Some retailers want to exercise lower rent rights at malls with Sears vacancies

Two retail companies want an Ontario court to allow them to exercise their co-tenancy rights and change their rental agreements at malls where failed anchor tenant Sears Canada left a vacancy.

Sears, Gap Inc.
The former Sears Canada store in Toronto’s Fairview Mall is now mostly vacant. Photo by Raysonho via Wikimedia Commons.

Gap Inc., which owns Gap, Banana Republic and Old Navy, and the Children’s Place filed notices of motion earlier this month asking the Ontario Superior Court of Justice to lift a stay on their co-tenancy rights.

The stay has cost Gap about $1.75 million, according to court documents, and the Children’s Place nearly $200,000 per month.

A co-tenancy right in a lease can give a retailer the right to reduce or restructure its rent if certain specified anchor tenants vacate the mall or reduce their square footage below a specific threshold, according to the documents. In some cases, it can allow a company to terminate its lease without any penalties.

The court ordered a stay on those rights in June 2017 for any property where Sears Canada owns or operates a store, office or warehouse.

The court granted the stay after the applicants — the company’s creditors — argued the stay was necessary and appropriate to mitigate the effects on the landlords and maintain the status quo during restructuring.

The stay is in effect until Dec. 18 this year, according to documents.

The retailers want the court to declare the stay no longer in effect once Sears Canada no longer owns or operates space in a shopping centre, or to nullify it.

Sears Canada closed its last remaining stores Jan. 14 of this year after spending much of 2017 attempting to reinvent itself and bring in traffic.

Gap operated 256 stores in Canada as of this April with 22 currently affected by the stay, according to documents.

Meanwhile the Children’s Place operates 126 retail locations in the country, according to documents, and 18 of those are impacted by the stay.

The motions are scheduled to be heard in October.

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