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Rash Of Lawsuits Over Unpaid Retail Rent Spotlights Moratorium Loopholes

Several San Francisco retail tenants are being sued over allegations of unpaid rent as the city continues its commercial eviction moratorium.

Union Square in San Francisco

The latest example is Saks Off 5th, named in a lawsuit filed last week alleging it hasn't paid $819K in rent and late charges to landlord Hudson Pacific Properties

The lawsuit against Saks Off 5th, which involves Hudson Pacific Properties-owned 901 Market St., is the latest to hit a high-profile S.F. retail tenant allegedly failing to pay rent. In June, H&M and Old Navy were hit with separate lawsuits filed by Ponte Gadea California LLC alleging they were failing to make rent payments.

Like many other local governments, San Francisco has a commercial eviction moratorium, in place since the onset of the coronavirus pandemic. In mid-July, S.F. Mayor London Breed extended the moratorium another month, saying that "emergency conditions continue to exist due to the ongoing public health crisis arising from COVID-19 and the economic impacts it has caused, warranting extension of the moratorium," Bisnow reported at the time

In the case of Saks Off 5th, Old Navy and H&M, it appears those San Francisco tenants lack protections under S.F.'s current eviction moratorium, which applies to tenants with worldwide gross receipts of $25M or under in the 2019 tax year. Each company saw sales in at least the hundreds of millions of dollars last year. 

Santino DeRose, principal of San Francisco-based retail brokerage Maven Properties, said such disputes can at least be ways to accelerate stalled lease renegotiations with a hurting retail tenant. 

"Perhaps litigation is being filed to move the negotiations along," DeRose said. "Landlords also have financial obligations with lenders, insurance premiums and property taxes, none of which offer much leniency."

In the H&M case, lawyers for Ponte Gadea signed a dismissal of action for all parties without prejudice, according to a July 1 filing in San Francisco Superior Court.

Lawyers representing Ponte Gadea and in the three lawsuits did not respond to Bisnow's requests for comment, and Bisnow did not hear back from multiple law firms after requesting comment. 

For big retail tenants who fall outside moratorium protections, rent concessions from landlords may be harder to come by, according to Perkins Coie attorney Allan Low, who said evictions are a possibility for bigger tenants in S.F.

"For the big tenants, you're not going to see much rent concession simply because landlords are looking at the tenant and their resources and saying, 'Well, you can pay the full rent,'" Low said. 

A spokesperson for Hudson's Bay Co., the parent company of Saks & Co. LLC, said it does not comment on pending litigation, and neither H&M nor Old Navy immediately responded to requests for comment.

Ponte Gadea's first lawsuit filed against Old Navy last month closely followed the beginning of another high-profile court dispute. Old Navy's parent company, Gap Inc., is being sued by Simon Property Group for $66M in unpaid rent and other claims.