California Apparel News

In the tough retail world where vacancies are mounting and foot traffic is declining, most mall-based retailers are trying to trim costs as much as possible.

So when Gap Inc. audited the amount of money it was paying to the Westfield malls it occupies, the San Francisco retailer and manufacturer alleged it was being overcharged to the tune of at least $1.83 million.

In a lawsuit filed May 1 in Los Angeles County Superior Court, Gap Inc. sued Westfield America Ltd. for breach of contract, unfair competition as well as other complaints because of alleged incorrectly calculated fees that Gap Inc. felt it shouldn’t have paid.

The overcharges were for Gap’s stores that operate under the nameplates Gap, Banana Republic, Old Navy and Athleta in more than two dozen Westfield malls. In California, those malls range from the Westfield Century City in Los Angeles to Westfield Horton Plaza in San Diego, Westfield Fashion Square in Sherman Oaks and Westfield Topanga in Canoga Park. Several malls outside of California were named in the lawsuit.

In court papers, Gap Inc. said it does periodic audits of its leases to verify the veracity of the fees it is being charged. The San Francisco company said it did an audit for 2007 and 2008, which identified numerous anomalies in the charges that Westfield collected.

“Westfield has systematically overcharged tenants of its centers for a variety of expenses that cannot properly be charged under their leases and has taken secret profits by designating contractors to perform services that are then charged to tenants at supra-competitive prices,” Gap Inc. said in its lawsuit.

Traditionally, landlords charge retailers for their share of maintenance and tax fees, calculated by the gross leasable area of a mall. But the lawsuit said the mall owners excluded certain areas of the malls in their calculations, which increased the fees that Gap Inc. had to pay.

Gap Inc. said the mall owners improperly counted vacant department stores as operating, improperly characterized movie theaters as department stores, improperly characterized stores’ exterior entrances as their primary entrances, improperly charged unauthorized tax-consulting fees, and overcharged on sanitation and sewer fees.

According to the lawsuit, Westfield acknowledged it owed Gap Inc. $1.83 million through 2015 but has refused to pay until an agreement to a global resolution of all of the overcharges can be reached.

The mall operator would not comment about the lawsuit, saying through its Los Angeles attorney, Greg Korman, that it doesn’t comment on pending litigation.

Emails to Gap’s Los Angeles attorney, Michael Geibelson, were not returned by press time.

The lawsuit was filed one month before French commercial real estate company Unibail-Rodamco completed its acquisition in early June of Westfield for nearly $16 billion. The new company is known as Unibail-Rodamco-Westfield.