Hudson's Bay Co. holds its annual meeting of shareholders in Toronto on June 3, 2016. Two landlords of the Hudson’s Bay Co. are suing the retailer for unpaid rent, alleging the iconic department store that anchors shopping malls across Canada hasn’t paid its bills at multiple locations since April. THE CANADIAN PRESS/Christopher Katsarov

Landlords sue Hudson’s Bay for unpaid rent, retailer says malls aren’t ‘first class’

Landlords sue Hudson’s Bay for unpaid rent, retailer says malls aren’t ‘first class’

Two Hudson’s Bay Co. landlords are suing the retailer for unpaid rent, alleging the iconic department store that anchors shopping malls across Canada hasn’t paid its bills at multiple locations since April.

The lawsuits, filed in Quebec Superior Court by Cominar Real Estate Investment Trust and Oxford Properties Group and its co-owners, are seeking so-called safeguard orders compelling HBC to pay rent.

The companies say in court documents that HBC owes more than $3.5 million in rent and other fees at five Quebec shopping malls, an amount that continues to climb by more than half a million dollars each month.

In an affidavit filed in response, Ian Putnam, president and chief executive officer of HBC Properties and Investment, said the company has been trying to reach a mutually acceptable solution with the landlords that recognizes COVID-19’s “dramatic impact” on retail.

“HBC still hopes to arrive at a reasonable resolution,” he said in court documents filed Wednesday.

“But their demand that HBC pay the entirety of the rent ignores the fundamental change in the nature of these properties,” Putnam said, adding that they are no longer the “first class” malls HBC bargained for.

The legal wrangling highlights the challenges facing both commercial landlords and retailers as foot traffic in brick-and-mortar stores continues to lag after widespread closures last spring.

With the second wave of the pandemic intensifying, the coming months could see more disputes emerge as shoppers turn to e-commerce instead of local shopping malls ahead of the busiest shopping season of the year.

Oxford Properties said the ongoing loss of rent from an anchor tenant could be crippling for its shopping centres, suggesting the retailer also has unpaid bills outside Quebec.

In court documents, the company said that while HBC continues to pay rent “under protest” at three of its shopping centres, it’s withholding rent at eight other locations.

The company’s portfolio of malls includes the Yorkdale Shopping Centre in North York, Ont., the Square One Shopping Centre in Mississauga, Ont., and the Southcentre Mall in Calgary, Alta.

“HBC’s aggregate indebtedness to the landlords of the Oxford Shopping Centres … is extremely large and growing at an alarming rate,” Oxford Properties said in court documents.

Oxford Properties, which is the real estate subsidiary of OMERS, added that an inability to collect the amount owing from HBC would cause “irreparable harm.”

Meanwhile, Cominar is threatening Hudson’s Bay with eviction from its three Quebec properties in addition to seeking unpaid rent.

Cominar claims in court documents that HBC owes $603,169 in rent at the Rockland Shopping Centre, $662,490 at the Champlain Mall and $144,393 at the Centre Laval.

Oxford Properties claims the retailer owes $1.4 million in overdue rent at Les Galeries de la Capitale and $875,680 at Les Promenades Gatineau.

The landlord also alleges that HBC has made it clear it has “no intention of paying any rent in the foreseeable future.”

“It appears that HBC’s true intention is to take advantage of the current challenging times to occupy and carry on business from the leased premises rent-free as long as possible,” Oxford Properties said.

“HBC is attempting to use the pandemic as a pretext to unjustly enrich itself at the expense of the landlord.”

Daniel O’Donnell, a spokesman for Oxford Properties, said although the landlord is willing to share the financial burden of COVID-19’s impact, HBC has ignored “multiple requests to enter into a constructive dialogue to find a mutually agreeable arrangement.”

He said HBC’s continued refusal to pay any rent — despite being open for business — pushed the company to pursue legal action.

But in his affidavit, Putnam said the allegation that HBC has simply refused to pay rent while also refusing to engage in good faith negotiations is “completely false.”

“HBC is committed to arriving at a reasonable resolution with Oxford,” he said. “It is not HBC’s intent to continue operating its stores without paying any rent.”

Part of the issue for HBC is the current state of the malls it anchors.

James Tate, a retail market analyst retained by HBC legal counsel, said in an affidavit that the landlord “is not delivering a first-class suburban regional centre in terms of customer traffic and opportunity for HBC.”

He said Oxford Properties has not consistently provided the elements required for a “first class suburban regional shopping centre,” including a place to shop, eat and socialize that is perceived as a clean and safe.

Diane J. Brisebois, Retail Council of Canada president and CEO, said it’s disappointing the landlords decided to take the issue to court.

“The case could set a precedent that’s damaging to the retail sector,” she said. “It’s unfortunate it had to come to this. Having huge anchor stores disappear from malls is a recipe for disaster.”

Citing shifting consumer behaviour, HBC said earlier this month it would permanently close its Winnipeg store in February 2021.

This report by The Canadian Press was first published Oct. 14, 2020.

Brett Bundale, The Canadian Press

Retail

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