By Esther Fung 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 10, 2020).

Tensions between landlords and retail tenants over missed rent payments have been boiling over for weeks. Now, they are spilling into the courtroom.

More landlords are turning to the court system in an effort to collect unpaid rent. They are led by property owners who didn't receive checks in April and May and are pursuing payment now that the customary 30-day grace period has expired.

Tenants are asserting that leases need to be modified because the pandemic forced store closures. But the clashes are intensifying even as states begin to loosen stay-at-home orders, allowing stores and restaurants to reopen within certain guidelines.

Landlords have filed recent complaints against brand names from Gap Inc. and PetSmart Inc. to the Manhattan retail outlet of the National Basketball Association, alleging breach of contract for withholding rent.

The recent unrest and looting across parts of the country also have led some tenants to postpone reopenings or close their operations again. That could further complicate rent collection.

Many courthouses across the country have started reopening in recent weeks, including in New York, Connecticut and Florida. When New York courts resumed accepting electronic filings for nonessential matters on Memorial Day, the typical caseload tripled in some courts. There could be a flood of default notices, judgments and evictions in other cities, too. But some may also end up settling out of court.

"Egos get involved," said Mitchel Friedman, senior vice president at RCS Real Estate Advisors, which represents retail tenants. "There's going to be a lot of saber-rattling before people come to the table."

Many nonpaying tenants say the pandemic is a force majeure, or an event outside their control that prevents them from meeting contractual obligations. Most property owners, however, said that the pandemic doesn't qualify as a force majeure event and that tenants still have to pay rent even if there are fewer or no sales.

"People are at loggerheads on how to resolve this," said Gene Spiegelman, vice chairman at Ripco Real Estate, a property brokerage. In places including New York City, which allowed nonessential retail stores to reopen with safety guidelines Monday, weeks later than other cities, "landlords and tenants are going to take it out on each other," he added.

Simon Property Group, the country's largest mall owner, filed a lawsuit against Gap last week over unpaid rent and other charges it says amount to $66 million. In the filing, Simon Property said the retailer has withheld rent for April, May and June. The lawsuit didn't state how many locations were at issue, but Simon Property had 412 stores operated by Gap as of the first quarter according to a supplemental filing.

Gap said it is committed to working with landlords to find "mutually agreeable solutions and fair rent terms."

"It's important to note the profound effect that Covid has had on shopping centers as well, leaving them closed to us and our customers for months," said Mark Daniel Snyder, communications manager at Gap.

A company linked to the Moinian Group, a privately held real-estate investment company, filed a complaint in late May saying that NBA Media Ventures breached the terms of its lease and is liable for $1.26 million in rents for its Manhattan location and other charges for April and May.

The lease, which started in November 2014, has a fixed rent of $7.5 million a year or $625,000 a month, according to the complaint filed at the U.S. District Court for the Southern District of New York. The complaint said the landlord complied with its obligations and that the tenant "had an absolute and unconditional obligation to pay to the plaintiff the rent due."

NBA said that its store, like others on Fifth Avenue in New York City, was required to close because of the pandemic. "Under those circumstances, we don't believe these claims have any merit," said league spokesman Mike Bass.

If rent negotiations fall apart, tenants sometimes file for bankruptcy, leaving judges to decide how much rent is due. Retailer Barneys New York filed for bankruptcy last year after it failed to secure affordable rent terms at the Madison Avenue flagship store.

Tenants also are filing lawsuits. Some have sued their insurance companies for denying business-interruption claims, while others, including Victoria's Secret Stores LLC, have filed summons to their landlords in New York to invalidate leases.

"Because of the Covid-19 pandemic...the lease and guaranty are no longer enforceable under the frustration of purpose doctrine," Victoria's Secret said in the summons filed to the New York Supreme Court regarding its lease in Manhattan's Herald Square.

Bath & Body Works, which has a store at New York's Park Avenue South with the same landlord, SL Green Realty, also filed a similar summons notice.

Stephen B. Meister, counsel to SL Green, fired back that the landlord had offered both companies the opportunity to defer a portion of their rent. Referring to L Brands Inc., parent of Victoria Secrets and Bath & Body Works, he said "this large national, publicly traded conglomerate" has failed to honor "its contractual rent obligations."

--Elisa Cho contributed to this article.

Write to Esther Fung at esther.fung@wsj.com

(END) Dow Jones Newswires

June 10, 2020 02:47 ET (06:47 GMT)