Downtown Sudbury mall wins decades-long legal battle over Zellers pullout

Elm Place mall owners win 12-year court battle after Zellers’ early 2004 exit. Vista Sudbury has been awarded more than $900,000 for lost revenue.

The owners of the Elm Place Mall in Greater Sudbury, Ont., have won more than $900,000 in compensation in a legal battle dating back to 2004, when Zellers left the mall before the end of its lease.

Known as the Rainbow Centre at the time, owners Vista Sudbury launched a legal fight, claiming that the early lease termination caused them substantial harm and seeking more than $12 million in damages.

The case was broken down into two parts, requiring two separate rulings. Vista won the first part, with the Superior Court of Justice ruling that Zellers had breached the terms of its lease. The second part of the case was to determine the dollar amount of compensation Vista should receive.

Zellers pulled out of the mall on May 15, 2004, 321 days before its lease expired. While the retailer paid its rent and other obligations in full, Vista argued that its sudden departure led other retailers to leave.

The 409,000 square foot mall opened in 1970 and operated for years as the City Centre Mall.

“Historically, two department stores served as anchor tenants, Eaton’s and Towers (which subsequently became Zellers in 1990),” the court ruling said.

“The years leading to the departure of Zellers were challenging. The mall went into receivership in 1993 and, by all accounts, was poorly managed thereafter. Eaton’s, which occupied both upstairs and main floor space in the east side of the mall, departed in October 1999 following its bankruptcy. Food City and Famous Players Theatres, also major tenants, departed shortly after in January 2000.”

Zellers became the anchor tenant at that point, but saw annual sales fall from $10.1 million in 1999 to $8.8 million in January 2001.

Vista bought the property in June 2001, after it went into receivership and was dealing with a vacancy rate of 60 per cent. The new owners spent money and started a number of initiatives that reduced the vacancy rate to 40.1 per cent by the end of 2003.

The moves also appeared to help Zellers, whose sales rebounded to more than $10 million by the end of 2004.

However, as part of internal discussions, Zellers decided in July 2003 that it wasn’t going to renew its lease, but didn’t tell Vista of its plans until several months later.

“Vista, in fact, had no concerns that Zellers would leave in light of the investment they had made in reviving the mall and the rebound in its sales,” the court said.

When the company was informed in February 2004, Vista owner Amin Visram said he was “shocked.”

Vista began an unsuccessful legal fight to try to force Zellers to remain.

While it managed to attract Hart Stores to occupy part of the Zellers space in the mall in August 2005, it lost several tenants in the next year.

“Vista alleges that Zellers’ closure occurred at a critical time for the mall,” the court said.

“It submits that Vista’s revitalization of the mall was succeeding, and that Zellers’ untimely closure killed its momentum and halted the mall’s growth.”

Sought more than $12M

It sued, seeking more than $12 million in damages. Zellers countered that Vista couldn’t reasonably prove that any damages were linked to Zellers leaving the mall 11 months before the end of its lease.

“It is undisputed that Zellers was entitled to vacate the mall, without penalty, on April 1, 2005,” the court said.

“I find that the 11th-hour disclosure is relevant to the assessment of damages, and specifically to the reasonableness of Vista’s efforts to mitigate its losses. In breaching its obligation of continuous operation, Zellers effectively gave Vista 79 days to prepare for its departure.”

The sudden departure put the mall in a tough spot when it came to finding a new tenant, and Vista said their desperation meant that Hart Stores was able to demand an extremely advantageous long-term lease.

However, the judge ruled that Vista had begun talks with Hart before Zellers left. Hart would have been in an advantageous negotiating position at some point, even if Zellers pulled out in April 2005, as it was entitled.

However, the fact that Zellers left early did put more pressure on Vista, and while not giving it the $12 million the company was seeking, the court did award Vista a total of $580,600.

That includes $308,967 as partial compensation for money the company spent convincing Hart stores to become the new anchor tenant, and $211,967 in losses from Rainbow Cinemas — money Vista spent on concessions to convince the movie theatre to keep operating.

Vista was also awarded compensation for lease losses from four businesses that pulled out after Zellers, ranging from $110 to $31,438.

In a separate ruling, interest costs were calculated to be $352,973, bringing the total award to $933,573.

The sides couldn’t agree on court costs and they will be determined after both sides make written submissions.

Read the full decision here.