Old Navy cites COVID-19 as defense for not paying rent in Buckhead Station
By David Pendered
In a potential preview of things to come, a COVID-19 defense is being mounted by a Buckhead retailer that has fallen behind on rent during the pandemic-related shutdown. The landlord’s lawsuit is pending in U.S. District Court in Atlanta.
The lawsuit could foretell a rash of litigation in the commercial real estate sector if tenants and landlords wrestle over payments for space that was closed by government action. Tenants may say they can’t pay rent because of the government-ordered shutdown. Landlords may say the lease binds the tenant to payment.
This case involves $148,062.50 in past-due rent, plus other unspecified amounts that may be due under law, according to the lawsuit.
Old Navy, LLC contends the economic shutdown ordered by the “government” has prevented the company from operating its store at Buckhead Station, located at the intersection of Buckhead Loop and Ga. 400. Consequently, Old Navy says it will not pay the lease, that it’s owed a refund for time its doors were ordered shut, and that the pandemic has required that the lease be modified as a matter of law, records show.
The landlord contends that Old Navy signed a lease and has not paid. The landlord claims it asked Old Navy for payment of $148,062.50 in a letter dated June 8. The landlord is Equity One (Southeast Portfolio), an affiliate of Regency Centers Corp., based in Jacksonville, Fla.
Regency Centers added a sense of urgency by noting that it could apply accelerated rental changes with no further notice. Regency Center also stated it may start the process to recover its property.
Old Navy responded with language that may become familiar in potential litigation over rent that’s due under terms of a lease, for space that was ordered closed by a government seeking to flatten the curve of the pandemic. This is how Old Navy’s defense describes the situation:
- “The COVID-19 pandemic has presented unique and unprecedented circumstances that were unforeseeable—indeed, unimaginable—at the time the Lease (as defined below) was executed. The disease is highly contagious and its spread has been rapid. The government’s reaction was profound and has prevented the Tenant store at issue in this action from opening its doors for months….
- “Following the outbreak of COVID-19 in the United States, Tenant was forced to suspend all retail operations at the Premises to comply with applicable governmental orders and guidelines and to protect the health and safety of its employees, customers, and the surrounding community.
- “For example, March 14, 2020, Georgia Governor Brian Kemp, issued an Executive Order declaring a statewide state of emergency as a result of the COVID-19 pandemic. And further on April 2, 2020, Governor Kemp issued an Executive Order requiring Georgians to shelter-in-place, which closed all non-essential businesses.
- “Moreover, Tenant decided to close all of its stores in the United States effective on March 19, 2020 due to the COVID-19 pandemic.
- “As a result of the foregoing circumstances and orders, and other applicable governmental orders and guidelines, all of which were unforeseeable at the time the Lease was entered into, and which resulted from no act of either party, the parties’ intended use of the Premises was frustrated, became impossible, illegal, and impracticable. Specifically, Tenant was forced to suspend all retail operations at the Premises. Tenant’s purpose in entering the Lease was frustrated. Tenant’s performance under the Lease became impossible and impracticable. And Tenant was deprived of the consideration it received in exchange for entering the Lease.”
Old Navy added its own sense of urgency. The company says it is owed a refund of the rent it had paid for March, and asks that the lease be modified.